

[Federal Register: November 30, 2005 (Volume 70, Number 229)]
[Notices]               
[Page 71867-71873]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr30no05-87]                         

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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 27166; 812-12909]

 
AEW Real Estate Income Fund, et al.; Notice of Application

Date: November 23, 2005.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').

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

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    Summary of Application: Applicants request an order that would 
permit certain registered management investment companies to invest 
cash balances in affiliated money market funds and to participate in a 
joint lending and borrowing facility.
    Applicants: AEW Real Estate Income Fund, IXIS Advisor Funds Trust I 
(formerly CDC Nvest Funds Trust I), IXIS Advisor Funds Trust II 
(formerly CDC Nvest Funds Trust II), IXIS Advisor Funds Trust III 
(formerly CDC Nvest Funds Trust III), IXIS Advisor Funds Trusts IV 
(formerly CDC Nvest Companies Trust I), IXIS Advisor Cash Management 
Trust (formerly CDC Nvest Cash Management Trust), Harris Associates 
Investment Trust, Loomis Sayles Funds I (formerly Loomis Sayles 
Investment Trust), Loomis Sayles Funds II (formerly Loomis Sayles 
Funds), Delafield Fund, Inc., Institutional Daily Income Fund, Cortland 
Trust, Inc., and Short Term Income Fund, Inc. (each, a ``Trust,'' and 
each Trust on behalf of itself and its existing series, an ``Existing 
Fund''); AEW Management and Advisers, L.P., IXIS Asset Management 
Advisors, L.P. (formerly CDC IXIS Asset Management Advisers, L.P.), 
Harris Associates L.P., Loomis, Sayles & Company, L.P., and Reich & 
Tang Asset Management, LLC (each, an ``Applicant Adviser'').
    Filing Dates: The application was filed on December 12, 2002, and 
amended on November 2, 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 December 20, 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, SEC, 100 F Street, NE., Washington, DC 20549-
9303; Applicants, c/o Coleen Downs Dinneen, Esq., IXIS Asset Advisors, 
L.P., 399 Boylston Street, Boston, MA 02116.

FOR FURTHER INFORMATION CONTACT: Deepak T. Pai, Senior Counsel, at 
(202) 551-6876, or Stacy L. Fuller, Branch Chief, 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 
SEC's Public Reference Branch, 100 F Street, NE., Washington, DC 20549-
0102 at telephone (202) 551-5850.

Applicants' Representations

    1. Each of the Existing Funds is a management investment company 
registered under the Act, and is organized as a Massachusetts business 
trust or a Maryland corporation. All but one of the Existing Funds are 
open-end investment companies (``open-end Funds''); the AEW Real Estate 
Income Fund is a closed-end investment company (``closed-end Fund''). 
Certain of the open-end Funds are money market funds subject to the 
requirements of Rule 2a-7 under the Act (each, a ``Central Fund''). Any 
Funds that are not Central Funds are referred to herein as 
``Participating Funds.''
    2. Applicants request that any relief granted pursuant to the 
Application also apply to any future series of the Trusts and to any 
other existing or future registered management investment companies, or 
series thereof, for which an Applicant Adviser, or a company 
controlling, controlled by, or under common control with an Applicant 
Adviser (together with the Applicant Advisers, the ``Advisers''), acts 
as investment adviser or sub-adviser (``Future Funds'' and together 
with the Existing Funds, the ``Funds'').\1\ Each Applicant Adviser is 
registered as an investment adviser under the Investment Advisers Act 
of 1940, and is an investment adviser to one or more of the Existing 
Funds. Each Applicant Adviser is an indirect wholly-owned subsidiary of 
IXIS Asset Management North America, L.P. Each Adviser, as the primary 
investment adviser or as subadviser to a Participating Fund is, and 
will be, responsible for the investment of Cash Balances, as defined 
below.
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    \1\ All existing Funds that presently intend to rely on the 
order are named as Applicants. Any existing or future Fund that 
subsequently relies on the order will comply with the terms and 
conditions in the Application.

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[[Page 71868]]

A. Investment of Cash Balances in the Central Funds

    1. Each Participating Fund has, or may be expected to have, cash 
reserves that have not been invested in portfolio securities 
(``Uninvested Cash'') held by its custodian. Uninvested Cash may result 
from a wide variety of sources, including dividends or interest 
received on portfolio securities, unsettled securities transactions, 
strategic reserves, matured investments, liquidations of investment 
securities, and new investor monies. In addition, certain of the 
Participating Funds also may participate in a securities lending 
program (``Securities Lending Program'') under which the Participating 
Funds lend their securities to registered broker-dealers or other 
institutional investors. These loans are continuously secured by 
collateral equal at all times to at least the market value of the 
securities loaned. Collateral for these loans may include cash (``Cash 
Collateral,'' and together with Uninvested Cash, ``Cash Balances''). 
Any Securities Lending Program, including any investment of Cash 
Collateral will comply with all present and future Commission and staff 
positions regarding securities lending arrangements.
    2. Applicants request an order to permit each Participating Fund to 
use its Cash Balances to purchase shares of one or more of the Central 
Funds that are in the same group of investment companies (as defined in 
section 12(d)(1)(G) of the Act) as the Participating Fund, and each 
Central Fund to sell its shares to, and redeem its shares from, 
Participating Funds that are in the same group of investment companies 
as the Central Fund (``Cash Sweep''). Investment by a Participating 
Fund of Cash Balances in shares of the Central Funds will be in 
accordance with each Participating Fund's investment restrictions and 
will be consistent with each Participating Fund's policies as set forth 
in its prospectus or statement of additional information (``SAI''). 
Applicants believe that by investing Cash Balances in the Central 
Funds, Participating Funds may reduce their transaction costs, create 
more liquidity, increase returns, and diversify holdings.
    3. In connection with the proposed Cash Sweep transactions, 
applicants request an order under (i) section 12(d)(1)(J) of the Act 
granting relief from sections 12(d)(1)(A) and (B) of the Act; (ii) 
sections 6(c) and 17(b) of the Act granting relief from section 17(a) 
of the Act; (iii) section 17(d) of the Act and Rule 17d-1 under the Act 
to permit certain joint arrangements.

B. Interfund Lending Program

    1. Under current arrangements, the Funds may lend money to banks, 
brokers or other entities by entering into repurchase agreements or 
purchasing other short-term instruments. In addition, the open-end 
Funds may borrow money from the same or other banks for temporary or 
emergency purposes to satisfy redemption requests or to cover 
unanticipated cash shortfalls, such as trade ``fails'' in which cash 
payments for a portfolio security sold by a Fund have been delayed. The 
open-end Funds may have credit arrangements with their custodians under 
which a custodian may, but is not obligated to, lend money to the Funds 
to meet their temporary or emergency cash needs. The open-end Funds may 
also borrow money from banks, brokers and other entities by entering 
into reverse repurchase agreements and economically similar 
transactions.
    2. If an open-end Fund borrows money from any bank under its 
current arrangements or under other arrangements, the Fund will pay 
interest on the borrowed cash at a significantly higher rate than the 
rate that would be earned by other (non-borrowing) Funds on repurchase 
agreements and other short-term instruments of the same maturity as the 
bank loan. Applicants believe this differential represents the bank's 
profit for serving as a middleman between a borrower and lender. Other 
bank loan arrangements, such as committed lines of credit, may require 
a borrowing Fund to pay substantial commitment fees in addition to the 
interest rate to be paid by the Fund on outstanding loans.
    3. Applicants request an order that would permit Funds that are in 
the same group of investment companies to enter into lending agreements 
(``Interfund Lending Agreements'') to lend and borrow money for 
temporary purposes directly to and from each other through a credit 
facility (``Interfund Loans'').\2\ Applicants believe that the proposed 
credit facility (``Credit Facility'') would both substantially reduce 
the borrowing costs of an open-end Fund that sought to borrow money for 
temporary or emergency purposes and enhance the ability of a lending 
Fund to earn higher rates of interest on its short-term loans than it 
might otherwise earn on high quality, short-term, interest-bearing 
investments. Although the Credit Facility would substantially reduce an 
open-end Fund's reliance on bank credit arrangements, the Funds may 
continue to maintain bank loan facilities.
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    \2\ The Central Funds and closed-end Funds will participate in 
the Credit Facility only as lenders.
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    4. Applicants state that the Credit Facility would likely provide a 
borrowing Fund with significant savings when its cash position is 
insufficient to meet temporary cash requirements. This situation could 
arise when redemptions exceed anticipated volumes and the borrowing 
Fund has insufficient cash on hand to satisfy such redemptions. When 
the Funds liquidate portfolio securities to meet redemption requests, 
which normally are effected immediately, they often do not receive 
payment in settlement for up to three days (or longer for certain 
foreign transactions). The Credit Facility would provide a source of 
immediate, short-term liquidity pending settlement of the sale of 
portfolio securities.
    5. Applicants also propose using the Credit Facility when a sale of 
securities fails due to circumstances beyond a Fund's control, such as 
delay in the delivery of cash to the Fund's custodian or improper 
delivery instructions by the broker effecting the transaction (``sales 
fails''). Sales fails may present a cash shortfall if the Fund has 
undertaken to purchase a security with the proceeds from 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 costs 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 would enable the Funds to have access to immediate 
short-term liquidity without incurring overdraft or other charges.
    6. While bank borrowings generally could supply needed cash to 
cover unanticipated redemptions and sales fails, under the Credit 
Facility a borrowing Fund would pay lower interest rates than those 
that would be payable under short-term loans offered by banks. 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 Central Funds. Thus, Applicants assert that the Credit Facility 
would benefit both borrowing and lending Funds.
    7. The interest rate to be charged on Interfund Loans (the 
``Interfund Rate'') would be determined daily and would be the average 
of (i) the higher of (x) the ``OTD Rate,'' as defined below, and (y) 
the ``Repo Rate,'' as defined below, and (ii) the ``Bank Loan Rate,'' 
as defined below. The OTD Rate on any day would be the highest rate 
available to the lending Funds from investments in

[[Page 71869]]

overnight time deposits. The Repo Rate on any day would be the highest 
interest rate available to the lending Funds from investments in 
overnight repurchase agreements. The Bank Loan Rate for any day would 
be calculated by the Interfund Lending Team, as defined below, 
according to a formula established by the board of trustees of each 
Fund (``Board''), intended to approximate the lowest interest rate at 
which short-term bank loans are available to the Funds. The formula 
would be based upon a publicly available rate (e.g., Federal funds rate 
plus 25 basis points) and would vary with that rate to reflect changing 
bank loan rates. The initial formula and any subsequent modification 
thereto would be subject to the approval of the Board of each Fund. In 
addition, each Fund's Board periodically would review the continuing 
appropriateness of reliance on the publicly available rate used to 
determine the Bank Loan Rate, as well as the relationship between the 
Bank Loan Rate and current bank loan rates available to the Funds.
    8. The Credit Facility would be administered by personnel at Reich 
& Tang Asset Management, LLC (``Reich & Tang'') who have accounting 
experience, are members of its mutual fund administration group or the 
financial analysis department, and who are not portfolio managers of a 
Fund (``Interfund Lending Team''). No portfolio manager from any Fund 
would participate in the administration of the Credit Facility. Under 
the Credit Facility, the portfolio managers for each Fund could provide 
standing instructions to participate daily as a borrower or lender. On 
each business day the Interfund Lending Team would collect data on the 
uninvested cash and borrowing requirements of the Funds from each 
Fund's custodian, portfolio managers and/or administrators. Once it had 
determined the aggregate amount of cash available for loans and 
borrowing demand, the Interfund Lending Team would allocate loans among 
borrowing Funds without any further communication from portfolio 
managers. Applicants expect there to be far more available cash each 
day than borrowing demand. After allocating cash for Interfund Loans, 
the Interfund Lending Team would invest any remaining cash in 
accordance with the standing instructions of the relevant Fund's 
portfolio managers or return remaining amounts for investment directly 
by the portfolio manager of the Fund.
    9. The Interfund Lending Team would allocate borrowing demand and 
cash available for lending among the Funds on what the Interfund 
Lending Team believed to be an equitable basis, subject to certain 
administrative requirements applicable to all Funds, such as the time 
of filing requests to participate, minimum loan sizes, and the need to 
minimize the number of transactions and associated administrative 
costs. To reduce transaction costs, each Interfund Loan may be 
allocated to minimize the number of participants necessary to complete 
that Interfund Loan transaction. The Interfund Lending Team would not 
solicit cash for loans from any Funds or publish or disseminate the 
amount of current borrowing demand to portfolio managers.
    10. The Interfund Lending Team would (i) monitor the interest rates 
charged and the other terms and conditions of the Interfund Loans, (ii) 
limit the borrowings and loans entered into by each Fund to ensure that 
they comply with the Fund's investment policies and limitations, (iii) 
ensure equitable treatment of each Fund under the Credit Facility, and 
(iv) make quarterly reports to the Funds' Boards concerning any 
transactions by the Funds under the Credit Facility and the Interfund 
Rates. The method of allocation and related administrative procedures 
would be approved by each Fund's Board, including a majority of 
trustees who are not interested persons of the Fund, as defined in 
section 2(a)(19) of the Act (``Independent Trustees''), to ensure that 
both borrowing Funds and lending Funds participate in the Credit 
Facility on an equitable basis.
    11. Reich & Tang would administer the Credit Facility pursuant to a 
form of Interfund Lending Agreement (to which Reich & Tang and each 
Fund participating in the Credit Facility would be a party). Reich & 
Tang would not receive any fees in connection with its administration 
of the Credit Facility.
    12. No Fund would participate in the Credit Facility unless (i) it 
had fully disclosed all material information concerning the Credit 
Facility in its prospectus or SAI, or, in the case of a closed-end 
Fund, in its registration statement or shareholder reports, (ii) it had 
obtained shareholder approval to participate in the Credit Facility, if 
shareholder approval were required by the Fund's fundamental investment 
policies, and (iii) the Fund's participation in the Credit Facility was 
consistent with its investment policies and restrictions and its 
organizational documents.
    13. In connection with the Credit Facility, Applicants request an 
order under (i) section 6(c) granting relief from sections 18(f) and 
21(b) of the Act; (ii) section 12(d)(1)(J) granting relief from 
sections 12(d)(1)(A) and (B) of the Act; (iii) sections 6(c) and 17(b) 
granting relief from sections 17(a) and (iv) section 17(d) and Rule 
17d-1 to permit certain joint arrangements.

Applicants' Legal Analysis

A. Investment of Cash Balances in the Central Funds

    1. Section 12(d)(1)(A) provides that no registered investment 
company may acquire securities of another investment company 
representing more than 3% of the acquired company's outstanding voting 
stock, more than 5% of the acquiring company's total assets, or, 
together with the securities of other investment companies, more than 
10% of the acquiring company's total assets. Section 12(d)(1)(B) 
provides that no registered open-end investment company, its principal 
underwriter or any broker or dealer, may sell the company's 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.
    2. Section 12(d)(1)(J) provides that the Commission may exempt any 
person, security, or transaction, or classes of persons, securities or 
transactions, from any provision of section 12(d)(1) if and to the 
extent that the exemption is consistent with the public interest and 
the protection of investors. Applicants request relief under section 
12(d)(1)(J) from the limitations of sections 12(d)(1)(A) and (B) to 
permit each Participating Fund to invest its Cash Balances in the 
Central Funds that are in the same group of investment companies as the 
Participating Fund; under the requested order, the Participating Fund's 
aggregate investment of Uninvested Cash in the Central Funds would not 
exceed the greater of 25% of such Participating Fund's total assets or 
$10 million.
    3. Applicants state that the proposed investment of Cash Balances 
in the Central Funds will not result in the abuses meant to be 
addressed by section 12(d)(1), including undue influence, layering of 
fees and complexity. Applicants state that because each Central Fund 
will maintain a highly liquid portfolio and both the Participating Fund 
and the Central Fund are in the same group of investment companies, 
there should not be a concern about undue influence by a Participating 
Fund over a Central Fund.

[[Page 71870]]

With respect to layering of fees, Applicants note that shares of the 
Central Funds sold to the Participating Funds will not be subject to a 
sales load, redemption fee, distribution fee under a plan adopted in 
accordance with Rule 12b-1 under the Act, or service fee (as defined in 
Rule 2830(b)(9) of the National Association of Securities Dealers, Inc. 
Conduct Rules (``NASD Conduct Rules'')). Applicants state that if a 
Central Fund offers more than one class of shares, a Participating Fund 
will invest its Cash Balances only in the class with the lowest expense 
ratio at the time of the investment. In addition, before the next 
meeting of the Board of a Participating Fund is held for the purpose of 
voting on any investment advisory contract, the investment adviser will 
provide the Board with information on the approximate cost to the 
adviser of, or portion of the advisory fee under the existing contract 
attributable to, managing the Participating Fund's Uninvested Cash that 
may be invested in the Central Funds. Further, before approving any 
investment advisory contract for a Participating Fund, the Board of the 
Participating Fund, including a majority of the Independent Trustees, 
will consider to what extent, if any, the investment advisory fees 
charged to the Participating Fund should be reduced to account for the 
reduced services provided to the Participating Fund as a result of 
Uninvested Cash being invested in the Central Funds. With regard to 
complexity, Applicants include a condition that the Central Funds will 
not acquire shares 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), except as permitted by a Commission 
order governing interfund loans.
    4. Section 17(a) makes it unlawful for any affiliated person of a 
registered investment company, or any affiliated person of the 
affiliated person (``Second Tier Affiliate''), acting as principal, 
knowingly to sell any security to or purchase any security from the 
investment company. Section 2(a)(3) of the Act defines an ``affiliated 
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 directly 
or indirectly controlling, controlled by, or under common control with 
the other person; and, in the case of an investment company, its 
investment adviser. Applicants state that because the Funds share a 
common Adviser or have Advisers that are under common control, the 
Funds may be deemed to be under common control and, thus, affiliated 
persons of each other. In addition, applicants state that a 
Participating Fund may acquire more than 5% of a Central Fund's 
outstanding voting securities and, as a result, the Participating Fund 
and the Central Fund may be deemed to be affiliated persons of each 
other. The sale of shares by the Central Funds to the Participating 
Funds and the redemption of such shares would thus be prohibited under 
section 17(a).
    5. Section 17(b) authorizes the Commission to exempt a transaction 
from section 17(a) 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) authorizes the Commission to exempt any person 
or transaction 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.
    6. Applicants submit that the request for relief to permit the 
purchase and redemption of shares of the Central Funds by the 
Participating Funds satisfies the standards in sections 6(c) and 17(b). 
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. In addition, 
Applicants state that the Participating Funds will retain their ability 
to invest Cash Balances directly in money market or other instruments 
as authorized by their respective investment objectives and policies if 
they believe they can obtain a higher rate of return or for any other 
reason. Each Central Fund reserves the right to discontinue selling 
shares to any of the Participating Funds if its Board determines that 
the sale will adversely affect its portfolio management and operations.
    7. Section 17(d) and Rule 17d-1 prohibit any 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. 
Applicants state that each Participating Fund (by purchasing shares of 
the Central Funds), the Advisers (by managing the assets of the 
Participating Funds and the Central Funds, including the Participating 
Funds' investments in the Central Funds), and each Central Fund (by 
selling shares to the Participating Funds) could be deemed to be 
participants in a ``joint enterprise or other joint arrangement'' 
within the meaning of section 17(d) and Rule 17d-1.
    8. Rule 17d-1 permits the Commission to approve a joint arrangement 
covered by the terms of section 17(d). In determining whether to 
approve a transaction, the Commission considers whether the investment 
company's participation in the joint enterprise 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 submit that investments by 
the Participating Funds will be at net asset value and will be 
indistinguishable from any other shareholder account maintained by the 
Central Funds, and that the transactions will be consistent with the 
Act. Applicants further submit that the arrangement is not intended to 
increase the fees earned by the Advisers. Thus, applicants contend that 
the proposed transactions meet the standards for relief under Rule 17d-
1.

B. Interfund Lending Program

    1. Section 17(a)(3) of the Act generally prohibits any affiliated 
person or Second-Tier Affiliate from borrowing money or other property 
from a registered investment company. Section 21(b) generally prohibits 
any registered management company from lending money or other property 
to any person if that person controls or is under common control with 
the company. As discussed above, Applicants believe that the Funds may 
be deemed to be under common control and, as a result, prohibited from 
participating in the Credit Facility because of sections 17(a)(3) and 
21(b).
    2. Applicants submit that sections 17(a)(3) and 21(b) were intended 
to prevent a party with 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 benefit that party and that are 
detrimental to the best interests of the investment company and its 
shareholders. Applicants assert that the proposed transactions do not 
raise such concerns for the following reasons: (i) Reich & Tang would 
receive no

[[Page 71871]]

compensation for administering the Credit Facility; (ii) 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 investments; (iii) the Interfund Loans would not involve a 
greater risk than such other investments; (iv) the lending Fund would 
earn interest on Interfund Loans at a rate higher than it could obtain 
through such other investments; and (v) the borrowing Fund would pay 
interest at a rate lower than otherwise available to it under bank loan 
agreements and avoid commitment fees associated with committed lines of 
credit. Moreover, Applicants believe that the other conditions proposed 
would effectively preclude the possibility of any Fund obtaining undue 
advantage over any other Fund.
    3. Applicants also seek exemptions from section 17(a)(1) under 
sections 6(c) and 17(b) and from section 12(d)(1) under section 
12(d)(1)(J) with respect to the Credit Facility. 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). Applicants 
contend that the standards under sections 6(c), 17(b), and 12(d)(1)(J), 
as stated above, are satisfied for all the reasons set forth in the two 
preceding paragraphs in support of their request for relief from 
sections 17(a)(3) and 21(b) and for the reasons set forth below.
    4. As discussed above, Applicants state that section 12(d)(1) was 
intended to prevent the pyramiding of investment companies in order to 
avoid, among other things, duplicative costs and fees that are 
generated by multiple layers of investment companies. Applicants submit 
that the Credit Facility does not involve these types of abuses. 
Regarding duplicative costs, Applicants state that Reich & Tang would 
administer the Credit Facility pursuant to an Interfund Lending 
Agreement between it and the relevant Fund and would not receive any 
compensation for its services. Applicants further state that the 
purpose of the Credit Facility is to provide economic benefits for all 
participating Funds.
    5. Section 18(f)(1) prohibits open-end investment companies from 
issuing any senior security, except that a company may borrow from any 
bank so long as immediately after the borrowing there is asset coverage 
of at least 300% for all borrowings of the company. Under section 18(g) 
of the Act, the term ``senior security'' includes any bond, debenture, 
note, or similar obligation or instrument constituting a security and 
evidencing indebtedness. Applicants request exemptive relief from 
section 18(f)(1) to the limited extent necessary to implement the 
Credit Facility (because the lending Funds are not banks).
    6. Applicants believe that granting relief under section 6(c) is 
appropriate. Based on the conditions and safeguards described in the 
Application, Applicants also submit that to allow the Funds to borrow 
from other Funds under the Credit Facility is consistent with the 
purposes and policies of section 18(f)(1).
    7. Applicants also request an order under Rule 17d-1 with respect 
to the Credit Facility. Applicants state that the Credit Facility could 
be deemed to be a ``joint enterprise or other joint arrangement'' 
within the meaning of section 17(d) and Rule 17d-1. Applicants submit 
that the proposed transactions meet the standards of Rule 17d-1 because 
the Credit Facility offers both reduced borrowing costs to borrowing 
Funds and enhanced returns on loaned funds to lending Funds. Applicants 
note that each Fund would have an equal opportunity to borrow and lend 
on equal terms consistent with its investments policies and fundamental 
investment limitations and that Reich & Tang would not receive any 
compensation for administering the Credit Facility. Applicants 
therefore believe that each Fund's participation in the Credit Facility 
would be on terms that are no different from or less advantageous than 
those of other participants.

Applicants' Conditions

    Applicants agree that any order of the Commission granting the 
requested relief will be subject to the following conditions:

A. Investment of Cash Balances in the Central Funds

    1. The shares of the Central Funds sold to and redeemed by the 
Participating Funds will not be subject to a sales load, redemption 
fee, distribution fee under a plan adopted in accordance with Rule 12b-
1 under the Act, or service fee (as defined in NASD Conduct Rule 
2830(b)(9)).
    2. 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, 
except as permitted by an SEC order governing interfund loans.
    3. Before the next meeting of the Board of a Participating Fund is 
held for the purpose of voting on an investment advisory contract of 
the Participating Fund under section 15 of the Act, the investment 
adviser to the Participating Fund will provide the Board with specific 
information regarding the approximate cost to the investment adviser 
of, or the portion of the investment advisory fee under the existing 
investment advisory agreement attributable to, managing the Uninvested 
Cash of the Participating Fund that may be invested in the Central 
Funds. Before approving any investment advisory contract for a 
Participating Fund, the Board of the Participating Fund, including a 
majority of the Independent Trustees, shall consider to what extent, if 
any, the investment advisory fees charged to the Participating Fund 
should be reduced to account for reduced services provided to the 
Participating Fund as a result of Uninvested Cash being invested in the 
Central Funds. The minute books of the Participating Fund will record 
fully the Board's consideration in approving the investment advisory 
contract, including the considerations relating to the fees referred to 
above.
    4. A Participating Fund may invest Uninvested Cash in, and hold 
shares of, the Central Funds only to the extent that such Participating 
Fund's aggregate investment of Uninvested Cash in the Central Funds 
does not exceed the greater of 25% of the Participating Fund's total 
assets or $10 million.
    5. Each Participating Fund and Central Fund shall be advised by an 
Adviser. Each Participating Fund may only invest in Central Funds that 
are in the same group of investment companies, as defined in section 
12(d)(1)(G) of the Act, as the Participating Fund. A Participating Fund 
that is subadvised by an Adviser may rely on the order provided that 
the Adviser manages Cash Balances.
    6. Investment of Cash Balances by a Participating Fund in shares of 
the Central Funds will be consistent with each Participating Fund's 
respective investment restrictions and policies as set forth in its 
prospectus and SAI or, in the case of a closed-end Fund, in its 
registration statement or shareholder reports.
    7. Before a Participating Fund may participate in a Securities 
Lending Program, a majority of the Board, including a majority of the 
Independent Trustees, will approve the Participating Fund's 
participation in the Securities Lending Program. The Board also will 
evaluate the Securities Lending Program and its results no less 
frequently than annually and determine that any investment of Cash 
Collateral in the Central Funds is in the best interest of the 
shareholders of the Participating Fund.

[[Page 71872]]

    8. The Board of any Participating Fund will satisfy the fund 
governance standards as defined in rule 0-1(a)(7) under the Act by the 
compliance date for the rule.

B. Interfund Lending Under the Credit Facility

    1. The interest rate to be charge to the Funds under the Credit 
Facility will be the average of (i) the higher of (x) the OTD Rate and 
(y) the Repo Rate and (ii) the Bank Loan Rate.
    2. The Interfund Lending Team on each business day will compare the 
Bank Loan Rate with the Repo Rate and the OTD Rate and will make cash 
available for Interfund Loans only if the Interfund Rate is (i) more 
favorable to the lending Fund than both the Repo Rate and the OTD Rate 
and (ii) more favorable to the borrowing Fund than the Bank Loan Rate.
    3. If a Fund has outstanding borrowings, then any Interfund Loans 
to the Fund (i) will be at an interest rate equal to or lower than any 
outstanding bank loan, (ii) 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, (iii) 
will have a maturity no longer than any outstanding bank loan (and in 
no event more than seven days) and (iv) 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. This event of 
default will entitle the lending Fund to call the Interfund Loan and 
exercise all rights with respect to the collateral, if any. Such call 
will be made if a lending bank or banks exercise their rights to call 
their loan under an 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 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 only on a secured basis. A Fund may not borrow 
through the Credit Facility or from any other source if its total 
outstanding borrowings immediately after the interfund borrowing would 
be more than 33\1/3\% of its total assets.
    5. Before any Fund that has outstanding interfund borrowings may, 
through additional borrowings, cause its outstanding borrowings from 
all sources to exceed 10% of its total assets, the Fund must first 
secure each outstanding Interfund Loan by the pledge of segregated 
collateral with a market value at least equal to 102% of the 
outstanding principal value of the loan. If the total outstanding 
borrowings of a Fund with outstanding Interfund Loans exceed 10% of its 
total assets for any other reason (such as a decline in net asset value 
or shareholder redemptions), the Fund will within one business day 
thereafter (i) repay all of its outstanding Interfund Loans, (ii) 
reduce its outstanding indebtedness to 10% or less of its total assets 
or (iii) secure each outstanding Interfund Loan by a 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) will no 
longer be required. Until each Interfund Loan that is outstanding any 
time that a Fund's total outstanding borrowings exceed 10% is repaid or 
the Fund's total outstanding borrowings cease to exceed 10% of its 
total assets, the Fund will mark the value of the collateral to market 
each day and will pledge such additional collateral as is necessary to 
maintain the market value of the collateral that secures each 
outstanding Interfund Loan at least equal to 102% of the outstanding 
principal value of the Interfund Loan.
    6. No Fund may loan funds 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 
(8).
    9. Unless the Fund has a policy that prevents it from borrowing for 
other than temporary or emergency purposes, its borrowing through the 
Credit Facility, as measured on the day the most recent Interfund Loan 
was made to it, 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 the lending Fund and may be repaid on any day by the borrowing Fund.
    11. A Fund's participation in the Credit Facility must be 
consistent with its investment policies and limitations and 
organizational documents.
    12. The Interfund Lending Team will calculate total Fund borrowing 
and lending demand through the Credit Facility, and allocate Interfund 
Loans on an equitable basis among Funds, without the intervention of 
any portfolio manager of any Fund. The Interfund Lending Team will not 
solicit cash for the Credit Facility from any Fund or prospectively 
publish or disseminate loan demand data to portfolio managers. The 
Interfund Lending Team will invest amounts remaining after satisfaction 
of borrowing demand in accordance with standing instructions from 
portfolio managers or return remaining amounts for investment directly 
by the relevant Fund's portfolio managers.
    13. The Interfund Lending Team will monitor the interest rates 
charged and the other terms and conditions of the Interfund Loans and 
will make a quarterly report to each Fund's Board concerning the 
participation of the Fund in the Credit Facility and the terms and 
other conditions of any extensions of credit under the Credit Facility.
    14. Each Fund's Board, including a majority of the Independent 
Trustees: (i) Will review no less frequently than quarterly the Fund's 
participation in the Credit Facility during the preceding quarter for 
compliance with the conditions of any order permitting such 
transactions; (ii) 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 such Bank 
Loan Rate formula; and (iii) will review no less frequently than 
annually the continuing appropriateness of the Fund's participation in 
the Credit Facility.
    15. If 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, the Interfund Lending 
Team promptly will refer such loan for arbitration to an independent 
arbitrator who has been selected by the Board of any Fund involved in 
the loan who will serve as

[[Page 71873]]

arbitrator of disputes concerning Interfund Loans.\3\ 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 of the Funds involved in any 
such dispute setting forth a description of the nature of any dispute 
and the actions taken by the Funds to resolve the dispute.
---------------------------------------------------------------------------

    \3\ If the dispute involves Funds with separate Boards, the 
Board of each Fund will select an independent arbitrator that is 
satisfactory to each Fund.
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    16. Each Fund will maintain and preserve for a period of not less 
than six years from the end of the fiscal year in which any Interfund 
Loan occurred, the first two years in an easily accessible place, a 
written record of all such transactions setting forth a description of 
the terms of the transaction, including the amount, the maturity and 
the rate of interest on the loan, the OTD Rate, the rate of interest 
available at the time on overnight 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. The Interfund Lending Team will prepare and submit to the Board 
of each Fund 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 Credit Facility commences 
operations, the Interfund Lending Team will report to the Board 
quarterly on the operations of the Credit Facility.
    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 Interfund Lending Team'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 it shall be 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: (i) That the 
Interfund Rate will be higher than both the Repo Rate and the OTD Rate 
but lower than the Bank Loan Rate; (ii) compliance with the collateral 
requirements described in this application; (iii) compliance with the 
percentage limitations on interfund borrowing and lending; (iv) 
allocation of interfund borrowing and lending demand in an equitable 
manner and in accordance with procedures established by the Board: and 
(v) 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 prospectus or SAI or, in the case of a closed-
end Fund in its registration statement or shareholder reports, all 
material facts about its intended participation.
    19. The Board of each borrowing and lending Fund will satisfy the 
fund governance standards as defined in Rule 0-1(a)(7) under the Act by 
the compliance date for the rule.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 05-23492 Filed 11-29-05; 8:45 am]

BILLING CODE 8010-01-P
