[Federal Register Volume 70, Number 79 (Tuesday, April 26, 2005)]
[Notices]
[Pages 21474-21477]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-1973]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 26835; 812-1294]


UBS Supplementary Trust, et al.; Notice of Application

April 20, 2005.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application for an order under section 12(d)(1)(J) of 
the Investment Company Act of 1940 (``Act'') for an exemption from 
sections 12(d)(1) (A) and (B) of the Act, under sections 6(c) and 17(b) 
of the Act for an exemption from section 17(a) of the Act, and under 
section 17(d) of the Act and rule 17d-1 under the Act to permit certain 
joint transactions. The order would supersede two prior orders.\1\

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    \1\ Brinson Supplementary Trust, et al., Investment Company Act 
Rel. No. 23162 (Apr. 29, 1998) (notice) and Investment Company Act 
Rel. No. 23208 (May 27, 1998) (order) (``Prior Order''); and The 
Brinson Funds, et al., Investment Company Act Rel. No. 21741 (Feb. 
12, 1996) (notice) and Investment Company Act Rel. No. 21814 (Mar. 
11, 1996) (order) (``Prior Cash Sweep Order''). Certain affiliated 
persons of UBS Global AM have received separate cash sweep relief. 
See UBS PaineWebber Inc. et al., Investment Company Act Rel. No. 
25049 (June 26, 2001) (notice) and Investment Company Act Rel. No. 
25075 (July 24, 2001) (order); PaineWebber America Fund et al., 
Investment Company Act Rel. No. 23284 (June 24, 1998) (notice) and 
Investment Company Act Rel. No. 23322 (July 21, 1998) (order); and 
PaineWebber America Fund et al., Investment Company Act Rel. No. 
22541 (Mar. 4, 1997) (notice) and Investment Company Act Rel. No. 
22594 (Apr. 1, 1997) (order) (``PaineWebber Orders''). Applicants 
will not rely on the PaineWebber Orders, and the named applicants of 
and any other entities relying on the PaineWebber Orders will not 
rely on the relief requested by this application.
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    Applicants: UBS Supplementary Trust (``Supplementary Trust''), The 
UBS Funds (``UBS Trust''), UBS Relationship Funds (``Relationship 
Trust''), Fort Dearborn Income Securities, Inc. (``Fort Dearborn'') 
(UBS Trust, Relationship Trust and Fort Dearborn, the ``Investment 
Companies''), and UBS Global Asset Management (Americas) Inc. (``UBS 
Global AM'').
    Summary of Application: Applicants request an order that would 
permit (a) certain registered management investment companies and 
certain entities that are excluded from the definition of investment 
company by section 3(c)(1), 3(c)(7) or 3(c)(11) of the Act to invest 
uninvested cash and cash collateral in (i) affiliated money market 
funds and/or short-term bond funds or (ii) one or more affiliated 
entities that operate as cash management investment vehicles and that 
are excluded from the definition of investment company by section 
3(c)(1) or 3(c)(7) of the Act, and (b) the registered investment 
companies and the affiliated entities to continue to engage in purchase 
and sale transactions involving portfolio securities in reliance on 
rule 17a-7 under the Act.
    Filing Dates: The application was filed on March 12, 2003, and 
amended on October 25, 2004, and April 15, 2005.
    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 16, 2005, 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 Mark F. Kemper, Esq., UBS Global Asset 
Management (Americas) Inc., One North Wacker Drive, Chicago, IL 60606.

FOR FURTHER INFORMATION CONTACT: Janis F. Kerns, Senior Counsel, at 
(202) 551-6872, or Nadya Roytblat, Assistant Director, at (202) 551-
6821 (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 (telephone (202) 551-5850).

Applicants' Representations

    1. Each Investment Company is organized as a Delaware statutory 
trust, except Fort Dearborn, which is organized as an Illinois 
corporation. UBS Trust and Relationship Trust are registered under the 
Act as open-end management investment companies. Fort Dearborn is 
registered under the Act as a closed-end management investment company, 
and Supplementary Trust is exempt from registration pursuant to section 
3(c)(7) of the Act. Some of the Investment Companies have multiple 
series, each with separate investment objectives and policies (the 
``UBS Funds''). UBS Global AM is an investment adviser registered under 
the Investment Advisers Act of 1940 and serves as investment adviser to 
each UBS Fund. UBS Global AM and entities controlling, controlled by, 
or under common control with UBS Global AM are referred to as the 
``Advisor.'' \2\
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    \2\ Applicants request that any relief granted also apply to (a) 
any entity excluded from the definition of ``investment company'' 
under section 3(c)(1), section 3(c)(7) or section 3(c)(11) of the 
Act for which the Advisor serves as investment adviser or trustee 
exercising investment discretion (together with the Supplementary 
Trust, the ``Private Funds''), (b) all future series of the 
Investment Companies (included in the term ``UBS Funds''), and (c) 
all other management investment companies and their series 
registered under the Act for which the Advisor now, or in the 
future, acts as investment adviser (each, a ``Fund,'' and together 
with the UBS Funds, the ``Funds''). All entities that currently 
intend to rely on the requested order are named as applicants. Any 
other existing or future entity that relies on the order in the 
future will do so only in accordance with the terms and conditions 
of the application.
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    2. Certain Funds (``Registered Investing Funds'') and Private Funds 
(``Non-Registered Investing Funds'' and, together with the Registered 
Investing Funds, the ``Investing Funds'') have, or may be expected to 
have, cash that has not been invested in portfolio securities 
(``Uninvested Cash''). Uninvested Cash may result from a variety of 
sources, including dividends or interest received on portfolio 
securities, unsettled securities transactions, strategic reserves, 
matured investments, proceeds from liquidation of investment 
securities, dividend payments, or money from investors. The Investing 
Funds also may participate in a securities lending program 
(``Securities

[[Page 21475]]

Lending Program'') under which an Investing Fund may lend its portfolio 
securities to registered broker-dealers or other institutional 
investors. The loans are secured by collateral, including cash 
collateral (``Cash Collateral'' and together, with Uninvested Cash, 
``Cash Balances''), equal at all times to at least the market value of 
the securities loaned.
    3. Applicants request an order to permit: (i) The Investing Funds 
to use their Cash Balances to purchase shares of one or more of the 
Central Funds (as defined below); (ii) the Central Funds to sell their 
shares to and purchase (redeem) such shares from the Investing Funds; 
(iii) the Investing Funds and Central Funds to continue to engage in 
certain interfund purchase and sale transactions in securities 
(``Interfund Transactions''); and (iv) the Advisor to effect the above 
transactions.
    4. ``Registered Central Funds'' are or will be open-end Funds that 
are advised by the Advisor, in the same group of investment companies 
(as defined in section 12(d)(1)(G) of the Act) as the Investing Fund 
and either money market funds that comply with rule 2a-7 under the Act 
(``Registered Money Market Funds'') or short-term bond Funds that 
invest in fixed income securities and maintain a dollar-weighted 
average portfolio maturity of three years or less. ``Non-Registered 
Central Funds'' are or will be Private Funds that are excluded from the 
definition of investment company under section 3(c)(1) or 3(c)(7) of 
the Act and either operate as a money market fund in compliance with 
rule 2a-7 under the Act (``Private Money Market Funds'') or as a short-
term bond fund that invests in fixed income securities and maintains a 
dollar-weighted average portfolio maturity of three years or less. The 
Registered Central Funds and Non-Registered Central Funds are referred 
to collectively as the ``Central Funds.'' The investment by each 
Registered Investing Fund in shares of the Central Funds will be in 
accordance with that Registered Investing Fund's investment policies 
and restrictions as set forth in its registration statement. Applicants 
believe that the proposed transactions may reduce transaction costs, 
create more liquidity, increase returns, and further diversify 
holdings.\3\
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    \3\ A Non-Registered Central Fund that does not comply with rule 
2a-7 may accept investments of Cash Collateral from Investing Funds, 
but will not accept investments from Investing Funds of Uninvested 
Cash.
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Applicants' Legal Analysis

I. Investment of Cash Balances by the Investing Funds in the Central 
Funds

A. Section 12(d)(1)
    1. Section 12(d)(1)(A) of the Act provides that no registered 
investment company, or any company or companies controlled by such 
investment company, may acquire securities of any other investment 
company, and that no investment company, or any company or companies 
controlled by such investment company, may acquire securities of any 
registered investment company, if such securities represent in the 
aggregate more than 3% of the acquired company's outstanding voting 
stock, more than 5% of the acquiring company's total assets, or if such 
securities, together with the securities of other acquired investment 
companies, represent more than 10% of the acquiring company's assets. 
Section 12(d)(1)(B) of the Act provides that no registered open-end 
investment company may sell its securities to another investment 
company if the sale will cause the acquiring company to own more than 
3% of the acquired company's voting stock, or if the sale will cause 
more than 10% of the acquired company's voting stock to be owned by 
investment companies. Any entity that is excluded from the definition 
of investment company under section 3(c)(1) or 3(c)(7) of the Act is 
deemed to be an investment company for the purposes of the 3% 
limitation specified in sections 12(d)(1)(A) and (B) with respect to 
purchases by and sales to such company.
    2. Section 12(d)(1)(J) of the Act provides that the Commission may 
exempt any person, security, or transaction from any provision of 
section 12(d)(1) if and to the extent that such exemption is consistent 
with the public interest and the protection of investors. Applicants 
request relief under section 12(d)(1)(J) to permit the Investing Funds 
to use their Cash Balances to acquire shares of the Registered Central 
Funds in excess of the percentage limitations in section 12(d)(1)(A), 
provided however, that in all cases a Registered Investing Fund's 
aggregate investment of Uninvested Cash in shares of the Central Funds 
will not exceed 25% of the Registered Investing Fund's total assets at 
any time. Applicants also request relief to permit the Registered 
Central Funds to sell their securities to the Investing Funds in excess 
of the percentage limitations in section 12(d)(1)(B).
    3. Applicants state that the proposed arrangement will not result 
in the abuses that sections 12(d)(1)(A) and (B) were intended to 
prevent. Applicants state that there is no threat of redemption to gain 
undue influence over the Registered Central Funds due to the highly 
liquid nature of each Registered Central Fund's portfolio. Applicants 
state that the proposed arrangement will not result in inappropriate 
layering of fees. Shares of the Central Funds sold to the Investing 
Funds will not be subject to a sales load, redemption fee, asset-based 
sales charge or service fee (as defined in rule 2830(b)(9) of the 
National Association of Securities Dealers Inc. Conduct Rules (``NASD 
Conduct Rules''), or if the shares are subject to any such fee, the 
Advisor for the Investing Fund will waive its advisory fee for each 
Investing Fund in an amount that offsets the amount of those fees 
incurred by the Investing Fund. If a Central Fund offers more than one 
class of shares in which a Registered Investing Fund may invest, the 
Registered Investing Fund will invest its Cash Balances only in the 
class with the lowest expense ratio at the time of investment. In 
addition, before approving any advisory contract under section 15 of 
the Act, the board of trustees (``Board'') of the Registered Investing 
Fund, including a majority who are not ``interested persons'' as 
defined in section 2(a)(19) of the Act (``Independent Trustees''), will 
consider to what extent, if any, the advisory fees charged to the 
Registered Investing Fund by the Advisor should be reduced to account 
for reduced services provided to the Registered Investing Fund as a 
result of the investment of Uninvested Cash in the Central Fund. 
Applicants represent that no Central Fund will acquire securities of 
any other investment company or company relying on sections 3(c)(1) or 
3(c)(7) of the Act in excess of the limits contained in section 
12(d)(1)(A) of the Act.
B. Section 17(a) of the Act
    1. Section 17(a) of the Act makes it unlawful for any affiliated 
person of a registered investment company (or an affiliated person of 
the affiliated person), acting as principal, to sell any security to or 
purchase any security from the investment company. Section 2(a)(3) of 
the Act defines an affiliated person of another person to include any 
person directly or indirectly owning, controlling, or holding with 
power to vote 5% or more of the outstanding voting securities of the 
other person, any person 5% or more of whose outstanding securities are 
directly or indirectly owned, controlled, or held with power to vote by 
the other person, any person directly or indirectly

[[Page 21476]]

controlling, controlled by, or under common control with the other 
person, and any investment adviser to the investment company. Because 
the Investing Funds and the Central Funds share a common investment 
adviser or trustee exercising investment discretion, they may be deemed 
to be under common control and thus affiliated persons of each other. 
In addition, if an Investing Fund purchases more than 5% of the voting 
securities of a Central Fund, the Central Fund and the Investing Fund 
may be affiliated persons of each other. As a result, section 17(a) 
would prohibit the sale of the shares of Central Funds to the Investing 
Funds, and the redemption of the shares by the Investing Funds.
    2. Section 17(b) of the Act authorizes the Commission to exempt a 
transaction from section 17(a) of the Act if the terms of the proposed 
transaction, including the consideration to be paid or received, are 
reasonable and fair and do not involve overreaching on the part of any 
person concerned, and the proposed transaction is consistent with the 
policy of each registered investment company concerned and with the 
general purposes of the Act. Section 6(c) of the Act permits the 
Commission to exempt persons or transactions from any provision of the 
Act, if the 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.
    3. Applicants submit that their request for relief to permit the 
purchase and redemption of shares of the Central Funds by the Investing 
Funds satisfies the standards in sections 6(c) and 17(b) of the Act. 
Applicants note that shares of the Central Funds will be purchased and 
redeemed at their net asset value, the same consideration paid and 
received for these shares by any other shareholder. Applicants state 
that the Registered Investing Funds will retain their ability to invest 
Cash Balances directly in money market instruments and other short-term 
obligations as authorized by their respective investment objectives and 
policies. Applicants state that a Registered Central Fund has the right 
to discontinue selling shares to any of the Investing Funds if the 
Registered Central Fund's Board or the Advisor determines that such 
sales would adversely affect the Registered Central Fund's portfolio 
management and operations.
C. Section 17(d) of the Act and Rule 17d-1 Under the Act
    1. Section 17(d) of the Act and rule 17d-1 under the Act prohibit 
an affiliated person of a registered investment company, acting as 
principal, from participating in or effecting any transaction in 
connection with any joint enterprise or joint arrangement in which the 
investment company participates, unless the Commission has approved the 
joint arrangement. Applicants state that the Investing Funds and the 
Central Funds, by participating in the proposed transactions, and the 
Advisor, by managing the proposed transactions, could be deemed to be 
participating in a joint arrangement within the meaning of section 
17(d) and rule 17d-1.
    2. In considering whether to approve a joint transaction under rule 
17d-1, the Commission considers whether the investment company's 
participation in the joint transaction is consistent with the 
provisions, policies and purposes of the Act, and the extent to which 
the participation is on a basis different from or less advantageous 
than that of other participants. Applicants state that the investment 
by the Investing Funds in shares of the Central Funds would be on the 
same basis and no different from or less advantageous than that of 
other participants. Applicants submit that the proposed transactions 
meet the standards for an order under rule 17d-1.

II. Interfund Transactions

    1. Applicants state that certain Funds currently rely on rule 17a-7 
under the Act to conduct Interfund Transactions. Rule 17a-7 under the 
Act provides an exemption from section 17(a) for a purchase or sale of 
certain securities between a registered investment company and an 
affiliated person of such company (or an affiliated person of an 
affiliated person), provided that certain conditions are met, including 
that the affiliation between the registered investment company and the 
affiliated person (or an affiliated person of the affiliated person) 
must exist solely by reason of having a common investment adviser, 
common officers and/or common directors or trustees. Applicants state 
that the Investing Funds and Central Funds may not be able to rely on 
rule 17a-7 when engaging in portfolio securities transactions with each 
other, because some of the Investing Funds may own 5% or more of the 
outstanding voting securities of a Central Fund and, therefore, an 
affiliation would not exist solely by reason of the transacting Funds 
having a common investment adviser, common officers and/or common 
directors or trustees.
    2. Applicants request relief under sections 6(c) and 17(b) of the 
Act to permit the Interfund Transactions. The Interfund Transactions 
for which relief is requested are transactions between Registered 
Investing Funds and Non-Registered Central Funds and between Non-
Registered Investing Funds and Registered Central Funds. Applicants 
state that the Funds will comply with rule 17a-7 under the Act in all 
respects, other than the requirement that the participants be 
affiliated solely by reason of having a common investment adviser, 
common directors and/or common officers. Applicants state that the 
additional affiliations created under sections 2(a)(3)(A) and (B) do 
not affect the other protections provided by rule 17a-7, including the 
integrity of the pricing mechanism employed and oversight by each 
Fund's Board. Applicants submit that the requested relief satisfies the 
standards for relief in sections 6(c) and 17(b).

Applicants' Conditions

    Applicants agree that the order granting the requested relief shall 
be subject to the following conditions:
    1. Shares of the Central Funds sold to and redeemed by the 
Investing Funds will not be subject to a sales load, redemption fee, 
asset-based sales charge, or service fee (as defined in rule 2830(b)(9) 
of the NASD Conduct Rules), or if those shares are subject to any such 
fee, the Advisor will waive its advisory fee for each Investing Fund in 
an amount that offsets the amount of those fees incurred by the 
Investing Fund.
    2. Before the next meeting of the Board of a Registered Investing 
Fund that invests in a Central Fund is held for the purpose of voting 
on an advisory contract under section 15 of the Act, the Advisor will 
provide the Board with such information as the Board may request to 
evaluate the effect of the investment of Uninvested Cash in the Central 
Funds upon the direct and indirect compensation to the Advisor. Such 
information will include specific information regarding the approximate 
cost to the Advisor of, or portion of the advisory fee under the 
existing advisory contract attributable to, managing the Uninvested 
Cash of the Registered Investing Fund that can be expected to be 
invested in the Central Funds. In connection with approving any 
advisory contract for a Registered Investing Fund, the Registered 
Investing Fund's Board, including a majority of the Independent 
Trustees, shall consider to what extent, if any, the advisory fees 
charged to the

[[Page 21477]]

Registered Investing Fund by the Advisor should be reduced to account 
for reduced services provided to the Registered Investing Fund by the 
Advisor as a result of the Uninvested Cash being invested in the 
Central Funds. The minute books of the Registered Investing Fund will 
record fully the Board's consideration in approving the advisory 
contract, including the considerations relating to fees referred to 
above.
    3. Each Registered Investing Fund will invest Uninvested Cash in, 
and hold shares of, the Central Funds only to the extent that the 
Registered Investing Fund's aggregate investment of Uninvested Cash in 
the Central Funds does not exceed 25% of the Registered Investing 
Fund's total assets.
    4. Investment by a Registered Investing Fund in shares of the 
Central Funds will be in accordance with the Registered Investing 
Fund's investment restrictions and will be consistent with the 
Registered Investing Fund's investment policies as set forth in its 
prospectus and statement of additional information. A Registered 
Investing Fund that complies with rule 2a-7 under the Act will not 
invest its Cash Balances in a Central Fund that does not comply with 
rule 2a-7. A Registered Investing Fund's Cash Balances will be invested 
in a particular Central Fund only if that Central Fund has been 
approved for investment by the Registered Investing Fund and if that 
Central Fund invests in the types of instruments that the Registered 
Investing Fund has authorized for the investment of its Cash Balances.
    5. Each Fund and Private Fund that may rely on the order will be 
advised by the Advisor. Each Registered Investing Fund and Registered 
Money Market Fund that may rely on the order will be part of the same 
group of investment companies (as defined in section 12(d)(1)(G) of the 
Act).
    6. No Central Fund will acquire securities of any other investment 
company or company relying on section 3(c)(1) or 3(c)(7) of the Act in 
excess of the limits contained in section 12(d)(1)(A) of the Act.
    7. The Non-Registered Central Funds will comply with the 
requirements of sections 17(a), (d), and (e), and 18 of the Act as if 
the Non-Registered Central Funds were registered open-end investment 
companies. With respect to all redemption requests made by an Investing 
Fund, the Non-Registered Central Funds will comply with section 22(e) 
of the Act. The Advisor will adopt procedures designed to ensure that 
each Non-Registered Central Fund complies with sections 17(a), (d), and 
(e), 18 and 22(e) of the Act. The Advisor will also periodically review 
and update, as appropriate, the procedures and will maintain books and 
records describing such procedures, and maintain the records required 
by rules 31a-1(b)(1), 31a-1(b)(2)(ii), and 31a-1(b)(9) under the Act. 
All books and records required to be made pursuant to this condition 
will be maintained and preserved for a period of not less than six 
years from the end of the fiscal year in which any transaction 
occurred, the first two years in an easily accessible place, and will 
be subject to examination by the Commission and its staff.
    8. Each Private Money Market Fund will comply with rule 2a-7 under 
the Act. With respect to each Private Money Market Fund, the Advisor 
will adopt and monitor the procedures described in rule 2a-7(c)(7) and 
will take such other actions as are required to be taken under those 
procedures. A Registered Investing Fund may only purchase shares of a 
Private Money Market Fund if the Advisor determines on an ongoing basis 
that the Private Money Market Fund is in compliance with rule 2a-7. The 
Advisor will preserve for a period of not less than six years from the 
date of determination, the first two years in an easily accessible 
place, a record of such determination and the basis upon which the 
determination was made. This record will be subject to examination by 
the Commission and its staff.
    9. Each Investing Fund will purchase and redeem shares of any Non-
Registered Central Fund as of the same time and at the same price, and 
will receive dividends and bear its proportionate share of expenses on 
the same basis, as other shareholders of the Non-Registered Central 
Fund. A separate account will be established in the shareholder records 
of each Non-Registered Central Fund for the account of each Investing 
Fund that invests in such Non-Registered Central Fund.
    10. To engage in Interfund Transactions, the Investing Funds and 
Central Funds will comply with rule 17a-7 under the Act in all respects 
other than the requirement that the parties to the transaction be 
affiliated persons (or affiliated persons of affiliated persons) of 
each other solely by reason of having a common investment adviser, or 
investment advisers which are affiliated persons of each other, common 
officers and/or common directors, solely because an Investing Fund and 
a Central Fund might become affiliated persons within the meaning of 
section 2(a)(3)(A) and (B) of the Act.
    11. The net asset value per share with respect to shares of a Non-
Registered Central Fund that is not a Private Money Market Fund will be 
determined separately for each such Non-Registered Central Fund by 
dividing the value of the assets belonging to that Non-Registered 
Central Fund, less the liabilities of that Non-Registered Central Fund, 
by the number of shares outstanding with respect to that Non-Registered 
Central Fund.
    12. Before a Registered Investing Fund may participate in the 
Securities Lending Program, a majority of the Board (including a 
majority of the Independent Trustees) will approve the Registered 
Investing Fund's participation in the Securities Lending Program. No 
less frequently than annually, the Board also will evaluate, with 
respect to each Registered Investing Fund, any securities lending 
arrangement and its results and determine that any investment of Cash 
Collateral in the Central Funds is in the best interests of the 
Registered Investing Fund.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-1973 Filed 4-25-05; 8:45 am]
BILLING CODE 8010-01-P