Rules and Regulations
promulgated
under the
Investment Company Act of 1940
Rule 2a-7 -- Money Market Funds
Definitions.
Acquisition (or Acquire) means any
purchase or subsequent rollover (but does not include the failure to exercise
a Demand Feature).
Amortized Cost Method of valuation means
the method of calculating an investment company's net asset value whereby portfolio
securities are valued at the fund's Acquisition cost as adjusted for amortization
of premium or accretion of discount rather than at their value based on current
market factors.
Asset Backed Security means a fixed income
security (other than a Government security) issued by a Special Purpose Entity
(as defined in this paragraph), substantially all of the assets which consist
of Qualifying Assets (as defined in this paragraph). Special Purpose Entity
means a trust, corporation, partnership or other entity organized for the sole
purpose of issuing securities that entitle their holders to receive payments that
depend primarily on the cash flow from Qualifying Assets, but does not include
a registered investment company. Qualifying Assets means financial assets,
either fixed or revolving, that by their terms convert into cash within a finite
time period, plus any rights or other assets designed to assure the servicing
or timely distribution of proceeds to security holders.
Business Day means any day, other than Saturday,
Sunday, or any customary business holiday.
Collateralized Fully means "Collateralized
Fully" as defined in Rule 5b-3(c)(1).
Conditional Demand Feature means a Demand
Feature that is not an Unconditional Demand Feature. A Conditional Demand Feature
is not a Guarantee.
Conduit Security means a security issued
by a Municipal Issuer (as defined in this paragraph) involving an arrangement
or agreement entered into, directly or indirectly, with a person other than a
Municipal Issuer, which arrangement or agreement provides for or secures repayment
of the security. Municipal Issuer means a state or territory of the United
States (including the District of Columbia), or any political subdivision or public
instrumentality of a state or territory of the United States. A Conduit Security
does not include a security that is:
Fully and unconditionally guaranteed
by a Municipal Issuer; or
Payable from the general revenues
of the Municipal Issuer or other Municipal Issuers (other than those
revenues derived from an agreement or arrangement with a person who
is not a Municipal Issuer that provides for or secures repayment of
the security issued by the Municipal Issuer); or
Related to a project owned and operated
by a Municipal Issuer; or
Related to a facility leased to and
under the control of an industrial or commercial enterprise that is
part of a public project which, as a whole, is owned and under the
control of a Municipal Issuer.
Demand Feature means:
A feature permitting the holder of
a security to sell the security at an exercise price equal to the
approximate amortized cost of the security plus accrued interest,
if any, at the time of exercise. A Demand Feature must be exercisable
either:
At any time on no more than 30
calendar days' notice; or
At specified intervals not exceeding
397 calendar days and upon no more than 30 calendar days' notice;
or
A feature permitting the holder of
an Asset Backed Security unconditionally to receive principal and
interest within 397 calendar days of making demand.
Demand Feature Issued By A Non-Controlled Person
means a Demand Feature issued by:
A person that, directly or indirectly, does not
control, and is not controlled by or under common control with the issuer of the
security subject to the Demand Feature (control means "control"
as defined in section 2(a)(9) of the Act;
or
A sponsor of a Special Purpose Entity
with respect to an Asset Backed Security.
Eligible Security means:
A Rated Security with a remaining
maturity of 397 calendar days or less that has received a rating from
the Requisite NRSROs in one of the two highest short-term rating categories
(within which there may be sub-categories or gradations indicating
relative standing); or
An Unrated Security that is of comparable quality
to a security meeting the requirements for a Rated Security in paragraph (a)(10)(i)
of this section, as determined by the money market fund's board of directors;
Provided, however, that:
A security that at the time
of issuance had a remaining maturity of more than 397 calendar
days but that has a remaining maturity of 397 calendar days or
less and that is an Unrated Security is not an Eligible Security
if the security has received a long-term rating from any NRSRO
that is not within the NRSRO's three highest long-term ratings
categories (within which there may be sub-categories or gradations
indicating relative standing), unless the security has received
a long-term rating from the Requisite NRSROs in one of the three
highest rating categories;
An Asset Backed Security (other than an Asset
Backed Security substantially all of whose Qualifying Assets consist of obligations
of one or more Municipal Issuers, as that term is defined in paragraph (a)(7)
of this section) shall not be an Eligible Security unless it has received a rating
from an NRSRO.
In addition, in the case of a security
that is subject to a Demand Feature or Guarantee:
The Guarantee has received a rating from
an NRSRO or the Guarantee is issued by a guarantor that has received a rating
from an NRSRO with respect to a class of debt obligations (or any debt obligation
within that class) that is comparable in priority and security to the Guarantee,
unless:
The Guarantee is issued
by a person that, directly or indirectly, controls, is controlled
by or is under common control with the issuer of the security
subject to the Guarantee (other than a sponsor of a Special
Purpose Entity with respect to an Asset Backed Security);
The security subject
to the Guarantee is a repurchase agreement that is Collateralized
Fully; or
The Guarantee is itself
a Government Security; and
The issuer of the Demand Feature
or Guarantee, or another institution, has undertaken promptly
to notify the holder of the security in the event the Demand Feature
or Guarantee is substituted with another Demand Feature or Guarantee
(if such substitution is permissible under the terms of the Demand
Feature or Guarantee).
Event of Insolvency means "Event
of Insolvency" as defined in Rule 5b-3(c)(2).
First Tier Security means any Eligible
Security that:
Is a Rated Security that has received
a short-term rating from the Requisite NRSROs in the highest short-term
rating category for debt obligations (within which there may be sub-categories
or gradations indicating relative standing); or
Is an Unrated Security that is of
comparable quality to a security meeting the requirements for a Rated
Security in paragraph (a)(12)(i) of this section, as determined by
the fund's board of directors; or
Is a security issued by a registered
investment company that is a money market fund; or
Is a Government Security.
Floating Rate Security means a security
the terms of which provide for the adjustment of its interest rate whenever a
specified interest rate changes and that, at any time until the final maturity
of the instrument or the period remaining until the principal amount can be recovered
through demand, can reasonably be expected to have a market value that approximates
its amortized cost.
Government Security means any "Government
security" as defined in section 2(a)(16)
of the Act.
Guarantee means an unconditional obligation
of a person other than the issuer of the security to undertake to pay, upon presentment
by the holder of the Guarantee (if required), the principal amount of the underlying
security plus accrued interest when due or upon default, or, in the case of an
Unconditional Demand Feature, an obligation that entitles the holder to receive
upon exercise the approximate amortized cost of the underlying security or securities,
plus accrued interest, if any. A Guarantee includes a letter of credit, financial
guaranty (bond) insurance, and an Unconditional Demand Feature (other than an
Unconditional Demand Feature provided by the issuer of the security).
Guarantee Issued By A Non-Controlled Person
means a Guarantee issued by:
A person that, directly or indirectly, does
not control, and is not controlled by or under common control with the
issuer of the security subject to the Guarantee (control means "control"
as defined in section 2(a)(9) of the Act;
or
A sponsor of a Special Purpose Entity
with respect to an Asset Backed Security.
NRSRO means any nationally recognized statistical
rating organization, as that term is used in paragraphs (c)(2)(vi)(E), (F) and
(H) of Rule 15c3-1 under the Exchange
Act, that is not an "affiliated person," as defined in section
2(a)(3)(C) of the Investment Company Act, of the issuer of, or any insurer
or provider of credit support for, the security.
Penny-Rounding Method of pricing means
the method of computing an investment company's price per share for purposes of
distribution, redemption and repurchase whereby the current net asset value per
share is rounded to the nearest one percent.
Rated Security means a security that meets
the requirements of paragraphs (a)(19)(i) or (ii) of this section, in each case
subject to paragraph (a)(19)(iii) of this section:
The security has received a short-term
rating from an NRSRO, or has been issued by an issuer that has received
a short-term rating from an NRSRO with respect to a class of debt
obligations (or any debt obligation within that class) that is comparable
in priority and security with the security; or
The security is subject to a Guarantee
that has received a short-term rating from an NRSRO, or a Guarantee
issued by a guarantor that has received a short-term rating from an
NRSRO with respect to a class of debt obligations (or any debt obligation
within that class) that is comparable in priority and security with
the Guarantee; but
A security is not a Rated Security
if it is subject to an external credit support agreement (including
an arrangement by which the security has become a Refunded Security)
that was not in effect when the security was assigned its rating,
unless the security has received a short-term rating reflecting the
existence of the credit support agreement as provided in paragraph
(a)(19)(i) of this section, or the credit support agreement with respect
to the security has received a short-term rating as provided in paragraph
(a)(19)(ii) of this section.
Refunded Security means "Refunded
Security" as defined in Rule 5b-3(c)(4).
Requisite NRSROs means:
Any two NRSROs that have issued a
rating with respect to a security or class of debt obligations of
an issuer; or
If only one NRSRO has issued a rating
with respect to such security or class of debt obligations of an issuer
at the time the fund acquires the security, that NRSRO.
Second Tier Security means any Eligible
Security that is not a First Tier Security. Second Tier Conduit Security
means any Conduit Security that is an Eligible Security that is not a First Tier
Security.
Single State Fund means a Tax Exempt Fund
that holds itself out as seeking to maximize the amount of its distributed income
that is exempt from the income taxes or other taxes on investments of a particular
state and, where applicable, subdivisions thereof.
Tax Exempt Fund means any money market
fund that holds itself out as distributing income exempt from regular federal
income tax.
Total Assets means, with respect to a money
market fund using the Amortized Cost Method, the total amortized cost of its assets
and, with respect to any other money market fund, the total market-based value
of its assets.
Unconditional Demand Feature means a Demand
Feature that by its terms would be readily exercisable in the event of a default
in payment of principal or interest on the underlying security or securities.
United States Dollar-Denominated means,
with reference to a security, that all principal and interest payments on such
security are payable to security holders in United States dollars under all circumstances
and that the interest rate of, the principal amount to be repaid, and the timing
of payments related to such security do not vary or float with the value of a
foreign currency, the rate of interest payable on foreign currency borrowings,
or with any other interest rate or index expressed in a currency other than United
States dollars.
Unrated Security means a security that
is not a Rated Security.
Variable Rate Security means a security
the terms of which provide for the adjustment of its interest rate on set dates
(such as the last day of a month or calendar quarter) and that, upon each adjustment
until the final maturity of the instrument or the period remaining until the principal
amount can be recovered through demand, can reasonably be expected to have a market
value that approximates its amortized cost.
Holding Out and Use of Names and Titles.
It shall be an untrue statement of material fact
within the meaning of section 34(b) of
the Act for a registered investment company, in any registration statement, application,
report, account, record, or other document filed or transmitted pursuant to the
Act, including any advertisement, pamphlet, circular, form letter, or other sales
literature addressed to or intended for distribution to prospective investors
that is required to be filed with the Commission by section
24(b) of the Act, to hold itself out to investors as a money market fund or
the equivalent of a money market fund, unless such registered investment company
meets the conditions of paragraphs (c)(2), (c)(3) and (c)(4) of this section.
It shall constitute the use of a materially
deceptive or misleading name or title within the meaning of section
35(d) of the Act for a registered investment company to adopt the
term "money market" as part of its name or title or the name
or title of any redeemable securities of which it is the issuer, or to
adopt a name that suggests that it is a money market fund or the equivalent
of a money market fund, unless such registered investment company meets
the conditions of paragraphs (c)(2), (c)(3), and (c)(4) of this section.
For purposes of this paragraph, a name that
suggests that a registered investment company is a money market fund or
the equivalent thereof shall include one that uses such terms as "cash,"
"liquid," "money," "ready assets" or similar
terms.
Share Price Calculations. The current price
per share, for purposes of distribution, redemption and repurchase, of any redeemable
security issued by any registered investment company ("money market fund"
or "fund"), notwithstanding the requirements of section
2(a)(41) of the Act and of Rule 2a-4 and Rule
22c-1 thereunder, may be computed by use of the Amortized Cost Method or the
Penny-Rounding Method; Provided, however, that:
Board Findings. The board of directors of
the money market fund shall determine, in good faith, that it is in the best interests
of the fund and its shareholders to maintain a stable net asset value per share
or stable price per share, by virtue of either the Amortized Cost Method or the
Penny- Rounding Method, and that the money market fund will continue to use such
method only so long as the board of directors believes that it fairly reflects
the market-based net asset value per share.
Portfolio Maturity. The money market fund
shall maintain a dollar- weighted average portfolio maturity appropriate to its
objective of maintaining a stable net asset value per share or price per share;
Provided, however, that the money market fund will not:
Except as provided in paragraph (c)(2)(ii)
of this section, Acquire any instrument with a remaining maturity
of greater than 397 calendar days; or
In the case of a money market fund
not using the Amortized Cost Method, Acquire a Government Security
with a remaining maturity of greater than 762 calendar days; or
Maintain a dollar-weighted average
portfolio maturity that exceeds ninety days.
Portfolio Quality.
General. The money market fund shall limit
its portfolio investments to those United States Dollar-Denominated securities
that the fund's board of directors determines present minimal credit risks (which
determination must be based on factors pertaining to credit quality in addition
to any rating assigned to such securities by an NRSRO) and that are at the time
of Acquisition Eligible Securities.
Second Tier Securities. Immediately after
the Acquisition of any Second Tier Security:
Taxable Funds. A money market fund
that is not a Tax Exempt Fund shall not have invested more than five percent of
its Total Assets in securities that are Second Tier Securities; and
Tax Exempt Funds. A money market fund
that is a Tax Exempt Fund shall not have invested more than five percent of its
Total Assets in Conduit Securities that are Second Tier Conduit Securities.
Securities Subject to Guarantees. A
security that is subject to a Guarantee may be determined to be an Eligible Security
or a First Tier Security based solely on whether the Guarantee is an Eligible
Security or First Tier Security, as the case may be.
Securities Subject to Conditional Demand
Features. A security that is subject to a Conditional Demand Feature ("Underlying
Security") may be determined to be an Eligible Security or a First Tier Security
only if:
The Conditional Demand Feature
is an Eligible Security or First Tier Security, as the case may
be;
At the time of the Acquisition
of the Underlying Security, the money market fund's board of directors
has determined that there is minimal risk that the circumstances
that would result in the Conditional Demand Feature not being
exercisable will occur; and
The conditions limiting
exercise either can be monitored readily by the fund, or relate
to the taxability, under federal, state or local law, of the
interest payments on the security; or
The terms of the Conditional
Demand Feature require that the fund will receive notice of
the occurrence of the condition and the opportunity to exercise
the Demand Feature in accordance with its terms; and
The Underlying Security or any
Guarantee of such security (or the debt securities of the issuer
of the Underlying Security or Guarantee that are comparable in
priority and security with the Underlying Security or Guarantee)
has received either a short-term rating or a long-term rating,
as the case may be, from the Requisite NRSROs within the NRSROs'
two highest short-term or long-term rating categories (within
which there may be sub-categories or gradations indicating relative
standing) or, if unrated, is determined to be of comparable quality
by the money market fund's board of directors to a security that
has received a rating from the Requisite NRSROs within the NRSROs'
two highest short-term or long-term rating categories, as the
case may be.
Portfolio Diversification.
Issuer Diversification. The money market
fund shall be diversified with respect to issuers of securities Acquired by the
fund as provided in paragraphs (c)(4)(i) and (c)(4)(ii) of this section, other
than with respect to Government Securities and securities subject to a Guarantee
Issued By A Non-Controlled Person.
Taxable and National Funds. Immediately
after the Acquisition of any security, a money market fund other than a Single
State Fund shall not have invested more than five percent of its Total Assets
in securities issued by the issuer of the security; Provided, however,
that such a fund may invest up to twenty-five percent of its Total Assets in the
First Tier Securities of a single issuer for a period of up to three Business
Days after the Acquisition thereof; Provided, further, that the fund may
not invest in the securities of more than one issuer in accordance with the foregoing
proviso in this paragraph at any time.
Single State Funds. With respect to
seventy-five percent of its Total Assets, immediately after the Acquisition of
any security, a Single State Fund shall not have invested more than five percent
of its Total Assets in securities issued by the issuer of the security; Provided,
however, that a Single State Fund shall not invest more than five percent
of its Total Assets in securities issued by the issuer of the security unless
the securities are First Tier Securities.
Second Tier Securities.
Taxable Funds. Immediately after the
Acquisition of any Second Tier Security, a money market fund that is not a Tax
Exempt Fund shall not have invested more than the greater of one percent of its
Total Assets or one million dollars in securities issued by that issuer that are
Second Tier Securities.
Tax Exempt Funds. Immediately after
the Acquisition of any Second Tier Conduit Security, a money market fund that
is a Tax Exempt Fund shall not have invested more than the greater of one percent
of its Total Assets or one million dollars in securities issued by that issuer
that are Second Tier Conduit Securities.
Issuer Diversification Calculations.
For purposes of making calculations under paragraph (c)(4)(i) of this section:
Repurchase Agreements. The Acquisition
of a repurchase agreement may be deemed to be an Acquisition of the underlying
securities, provided the obligation of the seller to repurchase the securities
from the money market fund is Collateralized Fully.
Refunded Securities. The Acquisition
of a Refunded Security shall be deemed to be an Acquisition of the escrowed Government
Securities.
Conduit Securities. A Conduit Security
shall be deemed to be issued by the person (other than the Municipal Issuer) ultimately
responsible for payments of interest and principal on the security.
Asset Backed Securities.
General. An Asset Backed Security
Acquired by a fund ("Primary ABS") shall be deemed to be issued by the
Special Purpose Entity that issued the Asset Backed Security, Provided, however:
Holdings of Primary ABS. Any person
whose obligations constitute ten percent or more of the principal amount of the
Qualifying Assets of the Primary ABS ("Ten Percent Obligor") shall be
deemed to be an issuer of the portion of the Primary ABS such obligations represent;
and
Holdings of Secondary ABS. If
a Ten Percent Obligor of a Primary ABS is itself a Special Purpose Entity issuing
Asset Backed Securities ("Secondary ABS"), any Ten Percent Obligor of
such Secondary ABS also shall be deemed to be an issuer of the portion of the
Primary ABS that such Ten Percent Obligor represents.
Restricted Special Purpose Entities.
A Ten Percent Obligor with respect to a Primary or Secondary ABS shall not be
deemed to have issued any portion of the assets of a Primary ABS as provided in
paragraph (c)(4)(ii)(D)(1) of this section if that Ten Percent Obligor is itself
a Special Purpose Entity issuing Asset Backed Securities ("Restricted Special
Purpose Entity"), and the securities that it issues (other than securities
issued to a company that controls, or is controlled by or under common control
with, the Restricted Special Purpose Entity and which is not itself a Special
Purpose Entity issuing Asset Backed Securities) are held by only one other Special
Purpose Entity.
Demand Features and Guarantees. In
the case of a Ten Percent Obligor deemed to be an issuer, the fund shall satisfy
the diversification requirements of paragraph (c)(4)(iii) of this section with
respect to any Demand Feature or Guarantee to which the Ten Percent Obligor's
obligations are subject.
Shares of Other Money Market Funds.
A money market fund that Acquires shares issued by another money market fund in
an amount that would otherwise be prohibited by paragraph (c)(4)(i) of this section
shall nonetheless be deemed in compliance with this section if the board of directors
of the Acquiring money market fund reasonably believes that the fund in which
it has invested is in compliance with this section.
Diversification Rules for Demand Features
and Guarantees. The money market fund shall be diversified with respect to
Demand Features and Guarantees Acquired by the fund as provided in paragraphs
(c)(4)(iii) and (c)(4)(iv) of this section, other than with respect to
a Demand Feature issued by the same institution that issued the underlying security,
or with respect to a Guarantee or Demand Feature that is itself a Government Security.
General. Immediately after the Acquisition
of any Demand Feature or Guarantee or security subject to a Demand Feature or
Guarantee, a money market fund, with respect to seventy-five percent of its Total
Assets, shall not have invested more than ten percent of its Total Assets in securities
issued by or subject to Demand Features or Guarantees from the institution that
issued the Demand Feature or Guarantee, subject to paragraphs (c)(4)(iii) (B)
and (C) of this section.
Second Tier Demand Features or Guarantees.
Immediately after the Acquisition of any Demand Feature or Guarantee (or a security
after giving effect to the Demand Feature or Guarantee) that is a Second Tier
Security, a money market fund shall not have invested more than five percent of
its Total Assets in securities issued by or subject to Demand Features or Guarantees
from the institution that issued the Demand Feature or Guarantee.
Demand Features or Guarantees Issued by
Non-Controlled Persons. Immediately after the Acquisition of any security
subject to a Demand Feature or Guarantee, a money market fund shall not have invested
more than ten percent of its Total Assets in securities issued by, or subject
to Demand Features or Guarantees from the institution that issued the Demand Feature
or Guarantee, unless, with respect to any security subject to Demand Features
or Guarantees from that institution (other than securities issued by such institution),
the Demand Feature or Guarantee is a Demand Feature or Guarantee Issued By A Non-
Controlled Person.
Demand Feature and Guarantee Diversification
Calculations.
Fractional Demand Features or Guarantees.
In the case of a security subject to a Demand Feature or Guarantee from an institution
by which the institution guarantees a specified portion of the value of the security,
the institution shall be deemed to guarantee the specified portion thereof.
Layered Demand Features or Guarantees.
In the case of a security subject to Demand Features or Guarantees from multiple
institutions that have not limited the extent of their obligations as described
in paragraph (c)(4)(iv)(A) of this section, each institution shall be deemed to
have provided the Demand Feature or Guarantee with respect to the entire principal
amount of the security.
Diversification Safe Harbor. A money market
fund that satisfies the applicable diversification requirements of paragraphs
(c)(4) and (c)(5) of this section shall be deemed to have satisfied the diversification
requirements of section 5(b)(1) of the
Act and the rules adopted thereunder.
Demand Features and Guarantees Not Relied Upon.
If the fund's board of directors has determined that the fund is not relying on
a Demand Feature or Guarantee to determine the quality (pursuant to paragraph
(c)(3) of this section), or maturity (pursuant to paragraph (d) of this section),
or liquidity of a portfolio security, and maintains a record of this determination
(pursuant to paragraphs (c)(9)(ii) and (c)(10)(vi) of this section), then the
fund may disregard such Demand Feature or Guarantee for all purposes of this section.
Downgrades, Defaults and Other Events.
Downgrades.
General. Upon the occurrence of either
of the events specified in paragraphs (c)(6)(i)(A) (1) and (2) of this section
with respect to a portfolio security, the board of directors of the money market
fund shall reassess promptly whether such security continues to present minimal
credit risks and shall cause the fund to take such action as the board of directors
determines is in the best interests of the money market fund and its shareholders:
A portfolio security of
a money market fund ceases to be a First Tier Security (either
because it no longer has the highest rating from the Requisite
NRSROs or, in the case of an Unrated Security, the board of
directors of the money market fund determines that it is no
longer of comparable quality to a First Tier Security); and
The money market fund's
investment adviser (or any person to whom the fund's board
of directors has delegated portfolio management responsibilities)
becomes aware that any Unrated Security or Second Tier Security
held by the money market fund has, since the security was
Acquired by the fund, been given a rating by any NRSRO below
the NRSRO's second highest short-term rating category.
Securities to Be Disposed Of. The reassessments
required by paragraph (c)(6)(i)(A) of this section shall not be required if, in
accordance with the procedures adopted by the board of directors, the security
is disposed of (or matures) within five Business Days of the specified event and,
in the case of events specified in paragraph (c)(6)(i)(A)(2) of this section,
the board is subsequently notified of the adviser's actions.
Special Rule for Certain Securities Subject
to Demand Features. In the event that after giving effect to a rating downgrade,
more than five percent of the fund's Total Assets are invested in securities issued
by or subject to Demand Features from a single institution that are Second Tier
Securities, the fund shall reduce its investment in securities issued by or subject
to Demand Features from that institution to no more than five percent of its Total
Assets by exercising the Demand Features at the next succeeding exercise date(s),
absent a finding by the board of directors that disposal of the portfolio security
would not be in the best interests of the money market fund.
Defaults and Other Events. Upon the occurrence
of any of the events specified in paragraphs (c)(6)(ii)(A) through (D) of this
section with respect to a portfolio security, the money market fund shall dispose
of such security as soon as practicable consistent with achieving an orderly disposition
of the security, by sale, exercise of any Demand Feature or otherwise, absent
a finding by the board of directors that disposal of the portfolio security would
not be in the best interests of the money market fund (which determination may
take into account, among other factors, market conditions that could affect the
orderly disposition of the portfolio security):
The default with respect to
a portfolio security (other than an immaterial default unrelated
to the financial condition of the issuer);
A portfolio security ceases
to be an Eligible Security;
A portfolio security has been
determined to no longer present minimal credit risks; or
An Event of Insolvency occurs
with respect to the issuer of a portfolio security or the provider
of any Demand Feature or Guarantee.
Notice to the Commission. In the event
of a default with respect to one or more portfolio securities (other than an immaterial
default unrelated to the financial condition of the issuer) or an Event of Insolvency
with respect to the issuer of the security or any Demand Feature or Guarantee
to which it is subject, where immediately before default the securities (or the
securities subject to the Demand Feature or Guarantee) accounted for 1/2 of 1
percent or more of a money market fund's Total Assets, the money market fund shall
promptly notify the Commission of such fact and the actions the money market fund
intends to take in response to such situation. Notification under this paragraph
shall be made telephonically, or by means of a facsimile transmission or electronic
mail, followed by letter sent by first class mail, directed to the attention of
the Director of the Division of Investment Management.
Defaults for Purposes of Paragraphs (c)(6)
(ii) and (iii). For purposes of paragraphs (c)(6) (ii) and (iii) of this section,
an instrument subject to a Demand Feature or Guarantee shall not be deemed to
be in default (and an Event of Insolvency with respect to the security shall not
be deemed to have occurred) if:
In the case of an instrument
subject to a Demand Feature, the Demand Feature has been exercised
and the fund has recovered either the principal amount or the
amortized cost of the instrument, plus accrued interest; or
The provider of the Guarantee
is continuing, without protest, to make payments as due on the
instrument.
Required Procedures: Amortized Cost Method.
In the case of a money market fund using the Amortized Cost Method:
General. In supervising the money market
fund's operations and delegating special responsibilities involving portfolio
management to the money market fund's investment adviser, the money market fund's
board of directors, as a particular responsibility within the overall duty of
care owed to its shareholders, shall establish written procedures reasonably designed,
taking into account current market conditions and the money market fund's investment
objectives, to stabilize the money market fund's net asset value per share, as
computed for the purpose of distribution, redemption and repurchase, at a single
value.
Specific Procedures. Included within
the procedures adopted by the board of directors shall be the following:
Shadow Pricing. Written procedures
shall provide:
That the extent of deviation,
if any, of the current net asset value per share calculated
using available market quotations (or an appropriate substitute
that reflects current market conditions) from the money market
fund's amortized cost price per share, shall be calculated
at such intervals as the board of directors determines appropriate
and reasonable in light of current market conditions;
For the periodic review
by the board of directors of the amount of the deviation as
well as the methods used to calculate the deviation; and
For the maintenance of
records of the determination of deviation and the board's
review thereof.
Prompt Consideration of Deviation.
In the event such deviation from the money market fund's amortized cost price
per share exceeds 1/2 of 1 percent, the board of directors shall promptly consider
what action, if any, should be initiated by the board of directors.
Material Dilution or Unfair Results.
Where the board of directors believes the extent of any deviation from the money
market fund's amortized cost price per share may result in material dilution or
other unfair results to investors or existing shareholders, it shall cause the
fund to take such action as it deems appropriate to eliminate or reduce to the
extent reasonably practicable such dilution or unfair results.
Required Procedures: Penny-Rounding Method.
In the case of a money market fund using the Penny-Rounding Method, in supervising
the money market fund's operations and delegating special responsibilities involving
portfolio management to the money market fund's investment adviser, the money
market fund's board of directors undertakes, as a particular responsibility within
the overall duty of care owed to its shareholders, to assure to the extent reasonably
practicable, taking into account current market conditions affecting the money
market fund's investment objectives, that the money market fund's price per share
as computed for the purpose of distribution, redemption and repurchase, rounded
to the nearest one percent, will not deviate from the single price established
by the board of directors.
Specific Procedures: Amortized Cost and Penny-Rounding
Methods. Included within the procedures adopted by the board of directors
for money market funds using either the Amortized Cost or Penny-Rounding Methods
shall be the following:
Securities for Which Maturity is Determined
by Reference to Demand Features. In the case of a security for which maturity
is determined by reference to a Demand Feature, written procedures shall require
ongoing review of the security's continued minimal credit risks, and that review
must be based on, among other things, financial data for the most recent fiscal
year of the issuer of the Demand Feature and, in the case of a security subject
to a Conditional Demand Feature, the issuer of the security whose financial condition
must be monitored under paragraph (c)(3)(iv) of this section, whether such data
is publicly available or provided under the terms of the security's governing
documentation.
Securities Subject to Demand Features or
Guarantees. In the case of a security subject to one or more Demand Features
or Guarantees that the fund's board of directors has determined that the fund
is not relying on to determine the quality (pursuant to paragraph (c)(3) of this
section), maturity (pursuant to paragraph (d) of this section) or liquidity of
the security subject to the Demand Feature or Guarantee, written procedures shall
require periodic evaluation of such determination.
Adjustable Rate Securities Without Demand
Features. In the case of a Variable Rate or Floating Rate Security that is
not subject to a Demand Feature and for which maturity is determined pursuant
to paragraphs (d)(1), (d)(2) or (d)(4) of this section, written procedures shall
require periodic review of whether the interest rate formula, upon readjustment
of its interest rate, can reasonably be expected to cause the security to have
a market value that approximates its amortized cost value.
Asset Backed Securities. In the case
of an Asset Backed Security, written procedures shall require the fund to periodically
determine the number of Ten Percent Obligors (as that term is used in paragraph
(c)(4)(ii)(D) of this section) deemed to be the issuers of all or a portion of
the Asset Backed Security for purposes of paragraph (c)(4)(ii)(D) of this section;
Provided, however, written procedures need not require periodic determinations
with respect to any Asset Backed Security that a fund's board of directors has
determined, at the time of Acquisition, will not have, or is unlikely to have,
Ten Percent Obligors that are deemed to be issuers of all or a portion of that
Asset Backed Security for purposes of paragraph (c)(4)(ii)(D) of this section,
and maintains a record of this determination.
Record Keeping and Reporting.
Written Procedures. For a period of not
less than six years following the replacement of such procedures with new procedures
(the first two years in an easily accessible place), a written copy of the procedures
(and any modifications thereto) described in paragraphs (c)(6) through (c)(9)
and (e) of this section shall be maintained and preserved.
Board Considerations and Actions. For
a period of not less than six years (the first two years in an easily accessible
place) a written record shall be maintained and preserved of the board of directors'
considerations and actions taken in connection with the discharge of its responsibilities,
as set forth in this section, to be included in the minutes of the board of directors'
meetings.
Credit Risk Analysis. For a period
of not less than three years from the date that the credit risks of a portfolio
security were most recently reviewed, a written record of the determination that
a portfolio security presents minimal credit risks and the NRSRO ratings (if any)
used to determine the status of the security as an Eligible Security, First Tier
Security or Second Tier Security shall be maintained and preserved in an easily
accessible place.
Determinations With Respect to Adjustable
Rate Securities. For a period of not less than three years from the date when
the determination was most recently made, a written record shall be preserved
and maintained, in an easily accessible place, of the determination required by
paragraph (c)(9)(iii) of this section (that a Variable Rate or Floating Rate Security
that is not subject to a Demand Feature and for which maturity is determined pursuant
to paragraphs (d)(1), (d)(2) or (d)(4) of this section can reasonably be expected,
upon readjustment of its interest rate at all times during the life of the instrument,
to have a market value that approximates its amortized cost).
Determinations with Respect to Asset Backed
Securities. For a period of not less than three years from the date when the
determination was most recently made, a written record shall be preserved and
maintained, in an easily accessible place, of the determinations required by paragraph
(c)(9)(iv) of this section (the number of Ten Percent Obligors (as that term is
used in paragraph (c)(4)(ii)(D) of this section) deemed to be the issuers of all
or a portion of the Asset Backed Security for purposes of paragraph (c)(4)(ii)(D)
of this section). The written record shall include:
The identities of the Ten Percent
Obligors (as that term is used in paragraph (c)(4)(ii)(D) of this
section), the percentage of the Qualifying Assets constituted
by the securities of each Ten Percent Obligor and the percentage
of the fund's Total Assets that are invested in securities of
each Ten Percent Obligor; and
Any determination that an Asset
Backed Security will not have, or is unlikely to have, Ten Percent
Obligors deemed to be issuers of all or a portion of that Asset
Backed Security for purposes of paragraph (c)(4)(ii)(D) of this
section.
Evaluations with Respect to Securities Subject
to Demand Features or Guarantees. For a period of not less than three years
from the date when the evaluation was most recently made, a written record shall
be preserved and maintained, in an easily accessible place, of the evaluation
required by paragraph (c)(9)(ii) (regarding securities subject to one or more
Demand Features or Guarantees) of this section.
Inspection of Records. The documents
preserved pursuant to this paragraph (c)(10) shall be subject to inspection by
the Commission in accordance with section 31(b)
of the Act as if such documents were records required to be maintained pursuant
to rules adopted under section 31(a) of the Act. If any action was taken under
paragraphs (c)(6)(ii) (with respect to defaulted securities and events of insolvency)
or (c)(7)(ii) (with respect to a deviation from the fund's share price of more
than 1/2 of 1 percent) of this section, the money market fund will file an exhibit
to the Form N-SAR filed for the period in which the action was taken describing
with specificity the nature and circumstances of such action. The money market
fund will report in an exhibit to such Form any securities it holds on the final
day of the reporting period that are not Eligible Securities.
Maturity of Portfolio Securities. For purposes
of this section, the maturity of a portfolio security shall be deemed to be the
period remaining (calculated from the trade date or such other date on which the
fund's interest in the security is subject to market action) until the date on
which, in accordance with the terms of the security, the principal amount must
unconditionally be paid, or in the case of a security called for redemption, the
date on which the redemption payment must be made, except as provided in paragraphs
(d)(1) through (d)(8) of this section:
Adjustable Rate Government Securities. A
Government Security that is a Variable Rate Security where the variable rate of
interest is readjusted no less frequently than every 762 calendar days shall be
deemed to have a maturity equal to the period remaining until the next readjustment
of the interest rate. A Government Security that is a Floating Rate Security shall
be deemed to have a remaining maturity of one day.
Short-Term Variable Rate Securities. A Variable
Rate Security, the principal amount of which, in accordance with the terms of
the security, must unconditionally be paid in 397 calendar days or less shall
be deemed to have a maturity equal to the earlier of the period remaining until
the next readjustment of the interest rate or the period remaining until the principal
amount can be recovered through demand.
Long-Term Variable Rate Securities. A Variable
Rate Security, the principal amount of which is scheduled to be paid in more than
397 calendar days, that is subject to a Demand Feature, shall be deemed to have
a maturity equal to the longer of the period remaining until the next readjustment
of the interest rate or the period remaining until the principal amount can be
recovered through demand.
Short-Term Floating Rate Securities. A Floating
Rate Security, the principal amount of which, in accordance with the terms of
the security, must unconditionally be paid in 397 calendar days or less shall
be deemed to have a maturity of one day.
Long-Term Floating Rate Securities. A Floating
Rate Security, the principal amount of which is scheduled to be paid in more than
397 calendar days, that is subject to a Demand Feature, shall be deemed to have
a maturity equal to the period remaining until the principal amount can be recovered
through demand.
Repurchase Agreements. A repurchase agreement
shall be deemed to have a maturity equal to the period remaining until the date
on which the repurchase of the underlying securities is scheduled to occur, or,
where the agreement is subject to demand, the notice period applicable to a demand
for the repurchase of the securities.
Portfolio Lending Agreements. A portfolio
lending agreement shall be treated as having a maturity equal to the period remaining
until the date on which the loaned securities are scheduled to be returned, or
where the agreement is subject to demand, the notice period applicable to a demand
for the return of the loaned securities.
Money Market Fund Securities. An investment
in a money market fund shall be treated as having a maturity equal to the period
of time within which the Acquired money market fund is required to make payment
upon redemption, unless the Acquired money market fund has agreed in writing to
provide redemption proceeds to the investing money market fund within a shorter
time period, in which case the maturity of such investment shall be deemed to
be the shorter period.
Delegation. The money market fund's board
of directors may delegate to the fund's investment adviser or officers the responsibility
to make any determination required to be made by the board of directors under
this section (other than the determinations required by paragraphs (c)(1) (board
findings); (c)(6)(i)(C) (rule for certain securities subject to second tier Demand
Features); (c)(6)(ii) (defaults and other events); (c)(7)(i) (general required
procedures: Amortized Cost Method); (c)(7)(ii)(A) (shadow pricing), (B) (prompt
consideration of deviation), and (C) (material dilution or unfair results); and
(c)(8) (required procedures: Penny Rounding Method) of this section) provided:
Written Guidelines. The Board shall establish
and periodically review written guidelines (including guidelines for determining
whether securities present minimal credit risks as required in paragraph (c)(3)
of this section) and procedures under which the delegate makes such determinations:
Oversight. The Board shall take any measures
reasonably necessary (through periodic reviews of fund investments and the delegate's
procedures in connection with investment decisions and prompt review of the adviser's
actions in the event of the default of a security or Event of Insolvency with
respect to the issuer of the security or any Guarantee to which it is subject
that requires notification of the Commission under paragraph (c)(6)(iii) of this
section) to assure that the guidelines and procedures are being followed.
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