

[Federal Register: January 10, 2006 (Volume 71, Number 6)]
[Notices]               
[Page 1564-1569]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr10ja06-61]                         

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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 27201; 812-13050]

 
Thrivent Mutual Funds, et al.; Notice of Application

January 3, 2006.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application for an order under (a) section 6(c) of 
the Investment Company Act of 1940 (``Act'') granting an exemption from 
sections 18(f) and 21(b) of the Act; (b) section 12(d)(1)(J) of the Act 
granting an exemption from section 12(d)(1) of the Act; (c) sections 
6(c) and 17(b) of the Act granting an exemption from sections 17(a)(1) 
and 17(a)(3) of the Act; and (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: Thrivent Mutual Funds (formerly known as The AAL Mutual 
Funds), Thrivent Series Fund, Inc. (formerly known as LB Series Fund, 
Inc.), Thrivent Financial Securities Lending Trust (collectively, the 
``Thrivent Investment Companies''), Thrivent Financial for Lutherans 
(``Thrivent Financial''), Thrivent Investment Management, Inc. 
(``Thrivent Investment Management''), any other person controlling, 
controlled by or under common control (within the meaning of section 
2(a)(9) of the Act) with Thrivent Financial (together with Thrivent 
Financial and Thrivent Investment Management, a ``Thrivent Adviser''), 
and any other open-end management investment company registered under 
the Act that in the future is advised by a Thrivent Adviser (``Future 
Investment Companies'', and together with the Thrivent Investment 
Companies, the ``Investment Companies'').

Filing Dates: The application was filed on December 11, 2003, and 
amended on December 23, 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 January 30, 2006, 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.

[[Page 1565]]


ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F 
Street, NE., Washington, DC 20549-9303. Applicants, James M. Odland, 
Esq., Thrivent Financial for Lutherans, 625 Fourth Avenue South, 
Minneapolis, Minnesota 55415.

FOR FURTHER INFORMATION CONTACT: Shannon Conaty, Senior Counsel, at 
(202) 551-6827 or Mary Kay Frech, 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 
Commission's Public Reference Desk, 100 F Street, NE., Washington, DC 
20549-0102 (tel. (202) 551-5850).

Applicants' Representations

    1. Each Thrivent Investment Company is registered under the Act as 
an open-end management investment company. Each of Thrivent Mutual 
Funds and Thrivent Financial Securities Lending Trust is organized as a 
Massachusetts business trust. Thrivent Series Fund, Inc. is organized 
as a Minnesota corporation. The Thrivent Investment Companies are 
comprised of multiple series; each series has separate investment 
objectives, policies and assets.\1\ Thrivent Financial, a fraternal 
benefit society organized under the laws of Wisconsin, Thrivent 
Investment Management, a corporation organized under the laws of 
Delaware, and any other Thrivent Adviser are each registered as an 
investment adviser under the Investment Advisers Act of 1940. Each Fund 
has entered into an investment advisory agreement with a Thrivent 
Adviser.
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    \1\ All Investment Companies that currently intend to rely on 
the order have been named as applicants. Any other existing or 
Future Investment Company that subsequently relies on the order will 
comply with the terms and conditions of the application. (An 
Investment Company, if it has no series, and each series of an 
Investment Company are referred to as a ``Fund''.)
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    2. Existing Commission orders permit the Funds 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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    \2\ The AAL Mutual Funds, et al., Investment Company Act Release 
Nos. 25254 (Nov. 6, 2001) (notice) and 25309 (Dec. 4, 2001) (order); 
AAL Variable Product Series Fund, Inc. et al., Investment Company 
Act Release Nos. 25253 (Nov. 6, 2001) (notice) and 25307 (Dec. 4, 
2001) (order); The AAL Mutual Funds, SEC Staff No-Action Letter 
(Dec. 12, 2002).
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    3. 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 similar 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 credit arrangements with their custodian banks (i.e., 
overdraft protection) under which the custodians may, but are not 
obligated to, lend money to the Funds to meet the Funds' temporary cash 
needs.
    4. If the Funds were to borrow money from their custodians under 
their current arrangements or under other credit facility arrangements 
with a bank, the Funds would pay interest on the borrowed cash at a 
rate which would be higher than the rate that would be earned by other 
(non-borrowing) Funds on investments in repurchase agreements and other 
short-term instruments of the same maturity as the bank loan. 
Applicants state that this differential represents the profit the bank 
would earn for serving as a middleman between a borrower and lender. 
Other bank loan arrangements, such as committed lines of credit, 
require the Funds to pay commitment fees in addition to the interest 
rate to be paid by the borrowing Fund.
    5. Applicants request an order that would permit the Funds to enter 
into 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 believe that the proposed credit 
facility would reduce the Funds' borrowing costs and enhance their 
ability to earn higher interest rates on short-term investments. 
Although the proposed credit facility would reduce the Funds' need to 
borrow from banks, the Funds would be free to establish committed lines 
of credit or other borrowing arrangements with banks. The Funds also 
would continue to maintain the overdraft protection currently provided 
by their custodians.
    6. Applicants anticipate that the credit facility would provide a 
borrowing Fund with significant savings when the cash position of the 
Fund is insufficient to meet temporary cash requirements. This 
situation could arise when redemptions exceed anticipated volumes and 
certain Funds have insufficient cash on hand to satisfy such 
redemptions. When a Fund liquidates portfolio securities to meet 
redemption requests which normally are effected immediately, it often 
does not receive payment in settlement for up to three days (or longer 
for certain foreign transactions). The credit facility would provide a 
source of immediate, short-term liquidity pending settlement of the 
sale of portfolio securities.
    7. Applicants also propose using the credit facility when a sale of 
securities ``fails'' due to circumstances 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 a Fund has undertaken to purchase 
securities using the proceeds from the securities sold. When a Fund 
experiences a cash shortfall due to a sales fail, the custodian 
typically extends temporary credit to cover the shortfall and the Fund 
incurs overdraft charges. Alternatively, the Fund could fail on its 
intended purchase due to lack of funds from the previous sale, 
resulting in additional cost to the Fund, or sell a security on a same 
day settlement basis, earning a lower return on the investment. Use of 
the credit facility under these circumstances would enable the Fund to 
have access to immediate short-term liquidity without incurring 
custodian overdraft or other charges.
    8. While borrowing arrangements with banks will continue to be 
available to cover unanticipated redemptions and sales fails, under the 
proposed credit facility a borrowing Fund would pay lower interest 
rates than those offered by banks on short-term loans. In addition, 
Funds making short-term cash loans directly to other Funds would earn 
interest at a rate higher than they otherwise could obtain from 
investing their cash in repurchase agreements. Thus, applicants believe 
that the proposed credit facility would benefit both borrowing and 
lending Funds.
    9. The interest rate charged to a Fund 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 Cash Management Team, defined below, each day an 
Interfund Loan is made according to a formula established by a Fund's 
board of trustees or directors (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

[[Page 1566]]

vary with this rate so as to reflect changing bank loan rates. The 
Board of each Fund would periodically review the continuing 
appropriateness of using the publicly available rate to determine the 
Bank Loan Rate, as well as the relationship between the Bank Loan Rate 
and current bank loan rates that would be available to the Funds. The 
initial formula and any subsequent modifications to the formula would 
be subject to the approval of each Fund's Board.
    10. The credit facility would be administered by Thrivent 
Financial's and Thrivent Investment Management's money market portfolio 
managers and members of investment operations together with staff of 
Thrivent Financial's mutual fund accounting department (collectively, 
the ``Cash Management Team'').\3\ Under the proposed credit facility, 
the portfolio managers for each participating Fund could provide 
standing instructions to participate daily as a borrower or lender. The 
Cash Management Team on each business day would collect data on the 
uninvested cash and borrowing requirements of all participating Funds 
from the Funds' custodians. Once it determined the aggregate amount of 
cash available for loans and borrowing demand, the Cash Management Team 
would allocate loans among borrowing Funds without any further 
communication from portfolio managers other than the Money Market Fund 
portfolio managers on the Cash Management Team. Applicants expect far 
more available uninvested cash each day than borrowing demand. All 
allocations will require the approval of at least one member of the 
Cash Management Team who is not a Money Market Fund portfolio manager. 
After the Cash Management Team has allocated cash for Interfund Loans, 
the Cash Management Team would invest any remaining cash in accordance 
with the standing instructions of portfolio managers or return 
remaining amounts to the Funds. The Money Market Funds typically would 
not participate as borrowers because they rarely need to borrow cash to 
meet redemptions.
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    \3\ All Funds currently are advised by either Thrivent Financial 
or Thrivent Investment Management. In the event that any other 
Thrivent Adviser serves as investment adviser to any Fund in the 
future, appropriate contractual arrangements will be made to assure 
that members of the Cash Management Team will have the authority to 
administer the credit facility on behalf of such Fund.
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    11. The Cash Management Team would allocate borrowing demand and 
cash available for lending among the Funds on what the Cash Management 
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 
participants necessary to complete the loan transaction. The method of 
allocation and related administrative procedures would be approved by 
each Fund's Board, including a majority of Board members who are not 
``interested persons'' of the Fund, as defined in section 2(a)(19) of 
the Act (``Independent Trustees/Directors''), to ensure both borrowing 
and lending Funds participate on an equitable basis.
    12. The Cash Management Team and the Thrivent Adviser would (a) 
Monitor the Interfund Loan Rates and the other terms and conditions of 
the loans; (b) limit the borrowings and loans entered into by each Fund 
to ensure that they comply with the Fund's investment policies and 
limitations; (c) ensure equitable treatment of each Fund; and (d) make 
quarterly reports to the Board of each Fund concerning any transactions 
by the Fund under the credit facility and the Interfund Loan Rate 
charged.
    13. The Thrivent Adviser, through the Cash Management Team, would 
administer the credit facility under its existing management or 
advisory agreement with each Fund and would receive no additional 
compensation for its services. Thrivent Financial or companies 
affiliated with it may collect fees in connection with repurchase and 
lending transactions generally, including transactions through the 
credit facility, for pricing and record keeping, bookkeeping and 
accounting services. These fees would be no higher than those 
applicable for comparable loan transactions.
    14. 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 facts concerning the credit facility in its statement of 
additional information (``SAI''); and (c) the Fund's participation in 
the credit facility is consistent with its investment objectives, 
limitations and organizational documents.
    15. In connection with the credit facility, applicants request an 
order under (a) section 6(c) of the Act granting relief from sections 
18(f) and 21(b) of the Act; (b) section 12(d)(1)(J) of the Act granting 
relief from section 12(d)(1) of the Act; (c) sections 6(c) and 17(b) of 
the Act granting relief from sections 17(a)(1) and 17(a)(3) of the Act; 
and (d) under section 17(d) and rule 17d-1 under the Act to permit 
certain joint arrangements.

Applicants' Legal Analysis

    1. Section 17(a)(3) generally prohibits any affiliated person, or 
affiliated person of an affiliated person, from borrowing money or 
other property from a registered investment company. Section 21(b) 
generally prohibits any registered management company from lending 
money or other property to any person if that person controls or is 
under common control with the company. Section 2(a)(3)(C) of the Act 
defines an ``affiliated person'' of another person, in part, to be any 
person directly or indirectly controlling, controlled by, or under 
common control with, the other person. Applicants state that the Funds 
may be under common control by virtue of having a Thrivent Adviser as 
their common investment adviser and having a common Board and officers.
    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 party 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 such party 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 Thrivent Adviser, through the Cash Management Team, 
would administer the program as a disinterested fiduciary;

[[Page 1567]]

(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) the lending Fund would receive 
interest at a rate higher than it could obtain through such other 
investments; and (e) the borrowing Fund would pay interest at a rate 
lower than otherwise available to it under its bank loan agreements and 
avoid the up-front commitment fees associated with committed lines of 
credit. Moreover, applicants believe that the other conditions in the 
application would effectively preclude the possibility of any Fund 
obtaining an undue advantage over any other Fund.
    4. Section 17(a)(1) generally prohibits an affiliated person of a 
registered investment company, or an affiliated person of an affiliated 
person, from selling any securities or other property to the company. 
Section 12(d)(1) generally makes it unlawful for a registered 
investment company to purchase or otherwise acquire any security issued 
by any other investment company except in accordance with the 
limitations set forth in that section. Applicants state that the 
obligation of a borrowing Fund to repay an Interfund Loan may 
constitute a security under sections 17(a)(1) and 12(d)(1). Section 
12(d)(1)(J) provides that the Commission may exempt persons or 
transactions from any provision of section 12(d)(1) if and to the 
extent such exemption 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 the Funds or 
shareholders, and that the Thrivent 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 of 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; provided, that immediately after the borrowing, 
there is asset coverage of at least 300 per centum for all borrowings 
of the company. Under section 18(g) of the Act, the term ``senior 
security'' includes any bond, debenture, note or similar obligation or 
instrument constituting a security and evidencing indebtedness. 
Applicants request 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 a Fund, including combined 
interfund and bank borrowings, have at least 300% asset coverage. Based 
on the conditions and safeguards described in the application, 
applicants also submit that to allow the Funds to borrow from other 
Funds pursuant to the proposed credit facility is consistent with the 
purposes and policies of section 18(f)(1).
    8. Section 17(d) and rule 17d-1 generally prohibit any affiliated 
person of a registered investment company, or affiliated persons of an 
affiliated person, when acting as principal, from effecting any 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 filed under the rule, 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 that are 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 Cash Management 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 Funds 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 
Fund (a) will be made 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 any collateral) and that such call will be made if the 
lending bank exercises its right to call its loan under its agreement 
with the borrowing Fund.
    4. A Fund may make an unsecured borrowing through the credit 
facility if its outstanding borrowings from all sources immediately 
after the interfund borrowing total 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

[[Page 1568]]

facility on a secured basis only. A Fund may not borrow through the 
credit facility or from any other source if its total outstanding 
borrowings immediately after the interfund borrowing would exceed the 
limits imposed by section 18 of the Act.
    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 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 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 loan.
    6. No Fund may lend to another Fund through the credit facility if 
the loan would cause the lending Fund's 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. 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.
    10. Each Interfund Loan may be called on one business day's notice 
by a lending Fund and may be repaid on any day by a borrowing Fund.
    11. A Fund's participation in the credit facility must be 
consistent with its investment policies and limitations and 
organizational documents.
    12. The Cash Management Team will calculate total Fund borrowing 
and lending demand through the credit facility, and allocate loans on 
an equitable basis among the Funds without the intervention of any 
portfolio manager of the Funds (except any portfolio manager of the 
Money Market Funds acting in her or his capacity as a member of the 
Cash Management Team). All allocations will require the approval of at 
least one member of the Cash Management Team who is not a Money Market 
Fund portfolio manager. The Cash Management Team will not solicit cash 
for the credit facility from any Fund or prospectively publish or 
disseminate loan demand data to portfolio managers (except to the 
extent that the portfolio managers of the Money Market Funds on the 
Cash Management Team have access to loan demand data). The Cash 
Management 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.
    13. The Cash Management Team and the Thrivent Adviser 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 
credit facility.
    14. The Board of each Fund, including a majority of the Independent 
Trustees/Directors: (a) Will review no less frequently than quarterly 
the Fund's participation in the credit facility during the preceding 
quarter for compliance with the conditions of any order permitting the 
transactions; (b) will establish the Bank Loan Rate formula used to 
determine the interest rate on Interfund Loans and review no less 
frequently than annually the continuing appropriateness of the Bank 
Loan Rate formula; and (c) will review no less frequently than annually 
the continuing appropriateness of the Fund's participation in the 
credit facility.
    15. In the event an Interfund Loan is not paid according to its 
terms and the default is not cured within two business days from its 
maturity or from the time the lending Fund makes a demand for payment 
under the provisions of the Interfund Lending Agreement, the Cash 
Management Team will promptly refer the loan for arbitration to an 
independent arbitrator selected by the Board(s) of any Funds involved 
in the loan who will serve as arbitrator of disputes concerning 
Interfund Loans.\4\ The arbitrator will resolve any problem promptly, 
and the arbitrator's decision will be binding on both Funds. The 
arbitrator will submit at least annually a written report to the Board 
of each Fund setting forth a description of the nature of any dispute 
and the actions taken by the Funds to resolve the dispute.
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    \4\ If the dispute involves Funds with separate Boards, 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 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 rate of interest on the loan, the rate of 
interest available at the time on short-term repurchase agreements and 
bank borrowings, the yield on any Money Market Fund in which the 
lending Fund could invest, and such other information presented to the 
Board in connection with the review required by conditions (13) and 
(14).
    17. The Cash Management Team and the Thrivent Adviser 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 
commencement of operations of the credit facility, the Cash Management 
Team and the Thrivent Adviser will report on the operations of the 
credit facility at each Board's quarterly meetings. In addition, for 
two years following the commencement of the credit facility, the 
independent public accountant for each Fund shall prepare an annual 
report that evaluates the respective Thrivent 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

[[Page 1569]]

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: (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.
    18. 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.
    19. The Board of any 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.
Nancy M. Morris,
Secretary.
 [FR Doc. E6-83 Filed 1-9-06; 8:45 am]

BILLING CODE 8010-01-P
