

[Federal Register: February 12, 2008 (Volume 73, Number 29)]
[Notices]               
[Page 8077-8081]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr12fe08-68]                         

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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 28144; 812-13427]

 
Pioneer Bond Fund, et al.; Notice of Application

February 5, 2008.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application for an order pursuant to (a) section 
6(c) of the Investment Company Act of 1940 (the ``Act'') for an 
exemption from sections 18(f) and 21(b) of the Act; (b) section 
12(d)(1)(J) of the Act for an exemption from section 12(d)(1) of the 
Act; (c) sections 6(c) and 17(b) of the Act for an exemption from 
sections 17(a)(1) and 17(a)(3) of the Act; and (d) section 17(d) of the 
Act and rule 17d-1 thereunder 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: Pioneer Bond Fund, Pioneer Diversified High Income 
Trust, Pioneer Emerging Markets Fund, Pioneer Equity Income Fund, 
Pioneer Equity Opportunity Fund, Pioneer Europe Select Equity Fund, 
Pioneer Floating Rate Trust, Pioneer Fund, Pioneer Fundamental Growth 
Fund, Pioneer High Income Trust, Pioneer High Yield Fund, Pioneer 
Ibbotson Asset Allocation Series, Pioneer Independence Fund, Pioneer 
International Equity Fund, Pioneer International Value Fund, Pioneer 
Mid Cap Growth Fund, Pioneer Mid Cap Value Fund, Pioneer Money Market 
Trust, Pioneer Municipal High Income Trust, Pioneer Municipal High 
Income Advantage Trust, Pioneer Principal Protected Trust, Pioneer Real 
Estate Shares, Pioneer Research Fund, Pioneer Select Growth Fund, 
Pioneer Select Value Fund, Pioneer Series Trust I, Pioneer Series Trust 
II, Pioneer Series Trust III, Pioneer Series Trust IV, Pioneer Series 
Trust V, Pioneer Series Trust VI, Pioneer Series Trust VII, Pioneer 
Short Term Income Fund, Pioneer Small Cap Value Fund, Pioneer Strategic 
Income Fund, Pioneer Municipal and Equity Income Trust, Pioneer Tax 
Free Income Fund, Pioneer Value Fund, and Pioneer Variable Contracts 
Trust (each, a ``Trust'' and collectively, the ``Trusts''), and Pioneer 
Investment Management, Inc. (``PIM'').
    Filing Dates: The application was filed on September 24, 2007, and 
amended on January 16, 2008.
    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 March 3, 2008 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 by 
writing to the Commission's Secretary.

ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F 
Street, NE., Washington, DC 20549-1090. Applicants, 60 State Street, 
Boston, MA 02109-1820.

FOR FURTHER INFORMATION CONTACT: Lewis B. Reich, Senior Counsel, at 
(202) 551-6919, or, Nadya Roytblat, Assistant Director, at (202) 551-
6821 (Office of Investment Company Regulation, Division of Investment 
Management).

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, 100 F Street, NE., Washington, DC 
20549-0102 (telephone (202) 551-5850).

Applicants' Representations

    1. Each Trust is organized as a Delaware statutory trust or 
Massachusetts business trust and is either an open-end or closed-end 
management investment company registered under the Act.\1\ Each Trust

[[Page 8078]]

consists of one or more series (``Funds''). PIM, a Delaware corporation 
and an indirect wholly-owned subsidiary of UniCredito Italiano S.p.A, 
is registered as an investment adviser under the Investment Advisers 
Act of 1940, as amended, and serves as the investment adviser and 
administrator of each Fund.
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    \1\ Applicants request that the order also apply to any existing 
or future registered management investment company that is part of 
the same ``group of investment companies'' as the Trusts, as defined 
in section 12(d)(1)(G)(ii) of the Act (included in the term 
``Trusts''). All entities that currently intend to rely on the 
requested order have been named as applicants. Any other entity that 
relies on the requested order in the future will comply with the 
terms and conditions set forth in the application.
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    2. At any particular time, while some Funds are lending money to 
banks or other entities by entering into repurchase agreements or 
purchasing other short-term instruments, other Funds may need to borrow 
money from the same or similar banks for temporary purposes to satisfy 
redemption requests, to cover unanticipated cash shortfalls such as a 
trade ``fail'' in which cash payment for a security sold by a Fund has 
been delayed, or for other temporary purposes.
    3. Currently, certain Funds have access to bank lines of credit for 
temporary borrowing purposes. If Funds borrow under those lines of 
credit , they pay interest on the loan at a rate that is significantly 
higher than the rate that is earned by other (non-borrowing) Funds on 
investments in repurchase agreements and other short term instruments 
of the same maturity as the loan. Applicants assert that this 
differential represents the profit earned by the lender on loans made 
under the lines of credit and is not attributable to any material 
difference in the credit quality or risk of such transactions.
    4. Applicants request an order that would permit the Trusts seek to 
enter into master interfund lending agreements (``Interfund Lending 
Agreements'') with each other on behalf of the Funds that would permit 
each Fund to lend money directly to and borrow directly from other 
Funds through a credit facility for temporary purposes (``Interfund 
Loan''). Applicants state that the proposed credit facility would 
substantially reduce the Funds' potential borrowing costs and enhance 
the ability of the lending Funds to earn higher rates of interest on 
their short-term lendings. Although the proposed credit facility would 
substantially reduce the Funds' need to borrow from banks, the Funds 
would be free to establish committed lines of credit or other borrowing 
arrangements with unaffiliated banks. Closed-end Funds and money market 
Funds will not participate as borrowers in the proposed credit 
facility.
    5. Applicants anticipate that the proposed credit facility would 
provide a borrowing Fund with significant savings at times when the 
cash position of the borrowing Fund is insufficient to meet temporary 
cash requirements. This situation could arise when shareholder 
redemptions exceed anticipated volumes and certain Funds have 
insufficient cash on hand to satisfy such redemptions. When the Funds 
liquidate portfolio securities to meet redemption requests, they often 
do not receive payment in settlement for up to three days (or longer 
for certain foreign transactions). However, redemption requests 
normally are effected immediately. The proposed credit facility would 
provide a source of immediate, short-term liquidity pending settlement 
of the sale of portfolio securities.
    6. Applicants also propose that a Fund could use the proposed 
credit facility when a sale of securities ``fails'' due to 
circumstances beyond the Fund's control, such as a delay in the 
delivery of cash to the Fund's custodian or improper delivery 
instructions by the broker effecting the transaction. ``Sales fails'' 
may present a cash shortfall if the Fund has undertaken to purchase a 
security using the proceeds from securities sold. Alternatively, the 
Fund could either ``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 proposed credit facility under 
these circumstances would enable the Fund to have access to immediate 
short-term liquidity without the Fund incurring custodian overdraft or 
other changes.
    7. While bank borrowings generally could supply needed cash to 
cover unanticipated redemptions and sales fails, under the proposed 
credit facility, a borrowing Fund would pay lower interest rates than 
those 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 a money market Fund. Thus, the proposed credit facility would 
benefit both borrowing and lending Funds.
    8. The interest rate to be charged to the Funds on any Interfund 
Loan (the ``Interfund Loan Rate'') would be the average of the ``Repo 
Rate'' and the ``Bank Loan Rate,'' both as defined below. The Repo Rate 
for any day would be the highest or best (after giving effect to 
factors such as the credit quality of the issuer) rate available to a 
lending Fund from investment in overnight repurchase agreements. The 
Bank Loan Rate for any day would be calculated by PIM each day an 
Interfund Loan is made according to a formula established by each 
Trust's board of trustees ( ``Trustees'') 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 50 basis points) and would vary with this 
rate so as to reflect changing bank loan rates. The initial formula and 
any subsequent modifications to the formula would be subject to the 
approval of each Trust's Trustees. Each Trust's Trustees would 
periodically review the continuing appropriateness of using the formula 
to determine the Bank Loan Rate, as well as the relationship between 
the Bank Loan Rate and current bank loan rates that would be available 
to the Funds. The initial formula and any subsequent modifications to 
it would subject to the approval of each Trust's Trustees.
    9. The proposed credit facility would be administered by PIM's fund 
accounting department, an investment professional within PIM who serves 
as a portfolio manager of money market Funds and a compliance 
professional within PIM (collectively, the ``Credit Facility Team''). 
Under the proposed credit facility, the portfolio managers for each 
participating Fund could provide standing instructions to participate 
daily as a borrower or lender. The Credit Facility Team on each 
business day would collect data on the uninvested cash and borrowing 
requirements of all participating Funds. Once it determined the 
aggregate amount of cash available for loans and borrowing demand, the 
Credit Facility Team would allocate loans among borrowing Funds without 
any further communication from the portfolio managers of the Funds 
(other than the money market Fund portfolio manager acting in his or 
her capacity as a member of the Credit Facility Team). After the 
allocating cash for Interfund Loans, the Credit Facility Team would 
invest any remaining cash in accordance with the standing instructions 
of the portfolio managers or such remaining amounts will be invested 
directly by the portfolio managers of the Funds.
    10. The Credit Facility Team would allocate borrowing demand and 
cash available for lending among the Funds on what the Credit Facility 
Team believes to be an equitable basis, subject to certain 
administrative procedures applicable to all Funds, such as the time of 
filing requests to participate, minimum loan lot sizes and the need to

[[Page 8079]]

minimize the number of transactions and associated administrative 
costs. To reduce transaction costs, each loan normally would be 
allocated in a manner intended to minimize the number of participants 
necessary to complete the loan transaction. The method of allocation 
and related administrative procedures would be approved by each Trust's 
Trustees, including a majority of Trustees who are not ``interested 
persons'' of the Trust, as that term is defined in Section 2(a)(19) of 
the Act (``Independent Trustees''), to ensure that both borrowing and 
lending Funds participate on an equitable basis.
    11. PIM, through the Credit Facility Team, would administer the 
proposed credit facility as part of its duties under the relevant 
management, advisory or administrative contract with each Fund and 
would receive no additional fee as compensation for its services in 
connection with the administration of the proposed credit facility. PIM 
would: (i) Monitor the Interfund Loan Rate and the other terms and 
conditions of the 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; and (iv) make quarterly reports to the Trustees concerning any 
transactions by the Funds under the proposed credit facility and the 
Interfund Loan Rate charged.
    12. No Fund may participate in the proposed credit facility unless: 
(i) The Fund has obtained shareholder approval for its participation, 
if such approval is required by law; (ii) the Fund has fully disclosed 
all material information concerning the credit facility in its 
prospectus and/or statement of additional information; and (iii) the 
Fund's participation in the credit facility is consistent with its 
investment objectives, limitations and organizational documents.
    13. 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) of the Act and rule 17d-1 under the Act to 
permit certain joint arrangements.

Applicants' Legal Analysis

    1. Section 17(a)(3) of the Act 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) of the Act generally prohibits any registered management company 
from lending money or other property to any person, directly or 
indirectly, if that person controls or is under common control with 
that 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, 
such other person. Section 2(a)(9) of the Act defines ``control'' as 
the ``power to exercise a controlling influence over the management or 
policies of a company,'' but excludes circumstances in which ``such 
power is solely the result of an official position with such company.'' 
Applicants state that the Funds could be deemed to be under common 
control by virtue of having PIM as their common investment adviser and/
or by reason of having common officers and Trustees.
    2. Section 6(c) of the Act 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) of the Act authorizes the Commission to exempt a proposed 
transaction from the provisions of Section 17(a) of the Act provided 
that the terms of the transaction, including the consideration to be 
paid or received, are fair and reasonable and do not involve 
overreaching on the part of any person concerned, and the transaction 
is consistent with the policy of the investment company as recited in 
its registration statement and with the general purposes of the Act. 
Applicants assert that the proposed arrangements satisfy these 
standards for the reasons discussed below.
    3. Applicants assert that sections 17(a)(3) and 21(b) were intended 
to prevent a person with strong potential adverse interests to, and 
some influence over the investment decisions of, a registered 
investment company from causing or inducing the investment company to 
engage in lending transactions that unfairly inure to the benefit of 
such person and that are detrimental to the best interests of the 
investment company and its shareholders. Applicants assert that the 
proposed credit facility transactions do not raise these concerns 
because: (a) PIM, through the Credit Facility Team, would administer 
the program as a disinterested fiduciary; (b) all Interfund Loans would 
consist only of uninvested cash reserves that a Fund otherwise would 
invest in short-term repurchase agreements or other short-term 
instruments; (c) the Interfund Loans would not involve a greater risk 
than such other investments; (d) the lending Fund would receive 
interest at a rate higher than it could obtain through such other 
investments; and (e) the borrowing Fund would pay interest at a rate 
lower than otherwise available to it under its bank loan agreements and 
avoid the quarterly commitment fees associated with committed lines of 
credit. Moreover, applicants believe that the other conditions in the 
application would effectively preclude the possibility of any Fund 
obtaining an undue advantage over any other Fund.
    4. Section 17(a)(1) of the Act generally prohibits any affiliated 
person of a registered investment company, or any affiliated person of 
such a person, from selling securities or other property to the 
investment company. Section 12(d)(1) of the Act generally makes it 
unlawful for a registered investment company to purchasing 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 that 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 assert 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 to the 
Funds' shareholders and that PIM 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.
    6. Section 18(f)(1) of the Act prohibits registered open-end 
investment companies from issuing any senior security except that a 
company is permitted to borrow from any bank, if immediately after the 
borrowing, there

[[Page 8080]]

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 assert that granting relief under section 6(c) of the 
Act is appropriate because the Funds would remain subject to the 
requirement of section 18(f)(1) of the Act that all borrowings of a 
Fund, including combined Interfund Loans and bank borrowings, have at 
least 300 per centum asset coverage. Based on the conditions and 
safeguards described in the application, applicants also assert 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) of the Act.
    8. Section 17(d) and rule 17d-1 generally prohibit any affiliated 
person of a registered investment company, or any affiliated person of 
an affiliated person, when acting as principal, from effecting any 
joint transaction 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 assert 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 of the Commission granting the 
requested relief will be subject to the following conditions:
    1. The Interfund Loan Rate will be the average of the Repo Rate and 
the Bank Loan Rate.
    2. On each business day, the Credit Facility Team will compare the 
Bank Loan Rate with the Repo Rate and will make cash available for 
Interfund Loans only if the Interfund Loan Rate is: (i) More favorable 
to the lending Fund than the Repo Rate and the yield of any money 
market Fund in which the lending Fund could otherwise invest; and (ii) 
more favorable to the borrowing Fund than the Bank Loan Rate.
    3. If a Fund has outstanding borrowings, 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 
any event not over seven days); and (iv) will provide that, if an event 
of default by the Fund 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 proposed 
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 proposed credit facility only on a secured basis. A 
Fund may not borrow through the proposed credit facility or from any 
other source if its total outstanding borrowings immediately after such 
borrowing would be more than 33\1/3\% of its total assets.
    5. Before any Fund that has outstanding interfund borrowings may, 
through additional borrowings, cause its outstanding borrowings from 
all sources to exceed 10% of its total assets, the Fund must first 
secure each outstanding Interfund Loan by the pledge of 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: (i) Repay all 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 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 Interfund Loan.
    6. No Fund may lend to another Fund through the proposed credit 
facility if the loan would cause its aggregate outstanding loans 
through the proposed credit facility to exceed 15% of the lending 
Fund's current 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 proposed 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 for the 
preceding seven

[[Page 8081]]

calendar days or 102% of the Fund's 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 proposed credit facility must be 
consistent with its investment objectives, and limitations and 
organizational documents.
    12. The Credit Facility Team will calculate total Fund borrowing 
and lending demand through the proposed credit facility, and allocate 
loans on an equitable basis among the Funds, without the intervention 
of any portfolio manager of the Funds (other than the money market Fund 
portfolio manager acting in his or her capacity as a member of the 
Credit Facility Team). All allocations will require the approval of at 
least one member of the Credit Facility Team who is not the money 
market Fund portfolio manager. The Credit Facility Team will not 
solicit cash for the proposed credit facility from any Fund or 
prospectively publish or disseminate loan demand data to portfolio 
managers (except to the extent that the money market Fund portfolio 
manager on the Credit Facility Team has access to loan demand data). 
The Credit Facility Team will invest any amounts remaining after 
satisfaction of borrowing demand in accordance with the standing 
instructions of the portfolio managers or such remaining amounts will 
be invested directly by the portfolio managers of the Funds.
    13. PIM will monitor the Interfund Loan Rate and the other terms 
and conditions of the Interfund Loans and will make a quarterly report 
to the Trustees of each Trust concerning the participation of the Funds 
in the proposed credit facility and the terms and other conditions of 
any extensions of credit under the credit facility.
    14. The Trustees of each Trust, including a majority of the 
Independent Trustees, will: (i) Review, no less frequently than 
quarterly, each Fund's participation in the proposed credit facility 
during the preceding quarter for compliance with the conditions of any 
order permitting such transactions; (ii) 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 (iii) review, no 
less frequently than annually, the continuing appropriateness of each 
Fund's participation in the proposed credit facility.
    15. In the event an Interfund Loan is not paid according to its 
terms and such default is not cured within two business days from its 
maturity or from the time the lending Fund makes a demand for payment 
under the provisions of the Interfund Lending Agreement, PIM will 
promptly refer such loan for arbitration to an independent arbitrator 
selected by the Trustees of each Fund involved in the loan who will 
serve as arbitrator of disputes concerning Interfund Loans.\2\ The 
arbitrator will resolve any problem promptly, and the arbitrator's 
decision will be binding on both Funds. The arbitrator will submit, at 
least annually, a written report to the Trustees 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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    \2\ If the dispute involves Funds with different Trustees, the 
respective Trustees 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 
by it under the proposed credit facility occurred, the first two years 
in an easily accessible place, written records of all such transactions 
setting forth a description of the terms of the transactions, including 
the amount, the maturity and the Interfund Loan Rate, the rate of 
interest available at the time on overnight repurchase agreements and 
commercial bank borrowings, the yield of any money market Fund in which 
the lending Fund could otherwise invest, and such other information 
presented to the Fund's Trustees in connection with the review required 
by conditions 13 and 14.
    17. PIM will prepare and submit to the Trustees for review an 
initial report describing the operations of the proposed credit 
facility and the procedures to be implemented to ensure that all Funds 
are treated fairly. After the commencement of the proposed credit 
facility, PIM will report on the operations of the proposed credit 
facility at the Trustees' 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 PIM's assertion that it has established 
procedures reasonably designed to achieve compliance with the terms and 
conditions of the order. The report will 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 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; (ii) compliance with the 
collateral requirements as set forth in the 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 Interfund Loan Rate 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, each Fund's independent auditors, 
in connection with their audit examination of the Funds, will continue 
to review the operation of the proposed 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 proposed credit facility upon 
receipt of requisite regulatory approval unless it has fully disclosed 
in its prospectus and/or statement of additional information all 
material facts about its intended participation.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E8-2472 Filed 2-11-08; 8:45 am]

BILLING CODE 8011-01-P
