Revised: July 29, 2011
Staff Responses to Questions about Rule 30b1-7 and Form N-MFP
The staff of the Division of Investment Management has prepared the following responses to questions related to rule 30b1-7 under the Investment Company Act and Form N-MFP and expects to update this document from time to time to include responses to additional questions. These responses represent the views of the staff of the Division of Investment Management. They are not a rule, regulation, or statement of the Commission, and the Commission has neither approved nor disapproved this information. The adopting release for money market fund reforms (dated February 23, 2010, the “Adopting Release”) can be found at: http://www.sec.gov/rules/final/2010/ic-29132.pdf.1 Responses to questions regarding rule 2a-7 are included in a separate document that is available at: http://www.sec.gov/divisions/investment/guidance/mmfreform-imqa.htm (“Money Market Fund Reform Q&A”).
I. Rule 30b1-7
A. Scope of Rule
Q: Is compliance with new rule 30b1-7 and Form N-MFP mandatory for a registered fund that holds itself out to investors as a money market fund but that does not use the Amortized Cost Method of valuation or the Penny Rounding Method of share pricing (i.e., a fund that only meets the conditions of Rules 2a-7(c)(2)-(5))?
A: Rule 30b1-7 requires every registered fund “that is regulated as a money market fund under [rule 2a-7]” to file Form N-MFP with the Commission. Accordingly, all funds subject to rule 2a-7, including those that do not use the Amortized Cost Method or Penny Rounding Method, must file Form N-MFP.
B. Portfolio Holdings Reporting Date
Q: Rule 30b1-7 requires that the report of portfolio holdings on Form N-MFP be current as of the last business day of the previous month. Some funds have indicated that they compile the portfolio holdings information as of the last calendar day of the month, even if that day is on a Saturday, Sunday or holiday. In these circumstances, may the fund’s report of portfolio holdings on Form N-MFP be current as of a calendar day in the month after the last business day of the month?
A: Commission staff would not object if a fund reports the portfolio holdings information on Form N-MFP current as of a day in the month on or after the last business day of the month.
II. Form N-MFP
A. Value of Shadow Prices
Q: Items 18 and 25 of Form N-MFP require disclosure of the net asset value (“NAV”) per share calculated using available market quotations (“shadow” price or “shadow” NAV), and the date as of which the shadow price was calculated. Items 45 and 46 of Form N-MFP require disclosure of the value of each security based on available market quotations. Should the security values provided in Items 45 and 46 be as of the date on which the shadow price per share was calculated, or as of the last Business Day of the month?
A: Disclosure of the market values for each security required by Items 45 and 46 must be as of the last Business Day of the month.
B. Multiple Classes
Q: If a money market fund has classes of shares, Form N-MFP requires disclosure of the shadow price of the series and of each class of shares. If the fund has a policy of paying daily dividends on each class of shares equal to the full amount of accrued net income attributable to the class (so no class will accumulate any value apart from its pro rata share of the fund's net assets), and only calculates its shadow NAV based on the total outstanding shares without regard to classes, can the fund use the series shadow NAV for each class?
A: If a money market fund’s dividend and accounting policies assure that there will be no deviation between the market-based NAVs of the classes of shares offered by the fund, the fund may use the same shadow NAV for each class without a separate calculation.
C. Investment Categories
Q: Form N-MFP (like the monthly website posting provision under rule 2a-7) requires funds to indicate the specific category most closely identified with each portfolio security. Must funds use the categories specified in Form N-MFP or can they use other categories?
A: Funds must use the categories specified in Form N-MFP.
D. Value of Capital Support Agreements
Q: Several items of Form N-MFP require the market value of each security to be reported separately, including and excluding the effect of any capital support agreement. How should a money market fund disclose the effect of a capital support agreement that does not relate to a particular security, such as an agreement to purchase, from time to time, any one of a number of securities as necessary to support NAV or to provide liquidity?
A: The value of a capital support agreement that does not relate to a particular security should not be reflected in the value of any particular security. Rather, the value of the support agreement itself (if any, as of the date of valuation) should be disclosed on Form N-MFP. Each item in Part 2 of Form N-MFP should be completed for the capital support agreement, as a separate security. If the capital support agreement has a value less than its maximum value (or no value) as of the date of valuation, the capital support agreement should be listed at its current value (or as having a value of zero).
Q: Items 45 and 46 of Form N-MFP require disclosure of the value of a money market fund share, including and excluding the effect of any capital support agreement. The value of certain capital support agreements will be determined only at such time as a loss is determined. (For example, an affiliate may agree to provide sufficient capital, up to a maximum, to bring a fund’s NAV to $.995, if a loss occurs.) How should a fund reflect the value of such an agreement?
A: If an affiliate has agreed to provide sufficient capital up to a maximum to bring a fund’s NAV to $.995, for example, then the value of the support agreement is the amount necessary to bring the fund’s shadow NAV up to $.995. If the fund’s shadow NAV is $.995 or above, then the support agreement has no value for purposes of Form N-MFP.
E. Responses to Questions Regarding Specific Items on Form N-MFP
Q: Item 17 — 7-Day Gross Yield. If the money market fund is a tax-exempt fund and it holds taxable paper, should the fund adjust the gross yield to reflect federal income taxes that would be imposed on the taxable paper?
Q: If the money market fund is a state tax exempt fund and it holds paper from out of state, should the fund adjust the gross yield to reflect state-level taxes that would be imposed on the out of state paper?
Q: Part 2 ("Schedule of Portfolio Securities," Items 26-46). — Should a money market fund report its cash holdings in custodial accounts with banks in the Schedule of Portfolio Securities?
A: No, cash holdings with banks should be included in Item 14 ("Total value of other assets, to the nearest cent").
Q: Item 29 — Other unique identifier. In the absence of a CUSIP, if a security is assigned a “dummy” CUSIP (i.e., a random series of digits used internally to identify a particular security), should the “dummy” CUSIP be provided as the other unique identifier?
Q: Item 32 — Repurchase agreement. If a security is a repurchase agreement and the fund is not treating the acquisition of the repurchase agreement as the acquisition of the underlying securities (i.e., collateral) for purposes of portfolio diversification under rule 2a-7, should the fund respond to Items 32a - f?
Q: Item 32 — Repurchase agreement. Item 32 requires that a fund describe the securities subject to the repurchase agreement. Some repurchase agreements are wholly or partially collateralized by equity securities. Items 32b - 32e of Form N-MFP require that the fund provide information specific to debt securities. How should a fund respond to Items 32b - 32e for equity securities?
A: A fund must provide a response to each of Items 32b - 32e for equity securities. The fund may provide the following information in response to each item:
Item 32b: The form requires the fund to provide a date. Funds may provide the date of filing.
Item 32c: The fund should respond: “N/A.”
Item 32d: The fund should respond “Other Instrument” and should describe the type of equity security (e.g., common, preferred).
Items 32e: The fund should provide “0.00.”
As with other underlying securities, a fund may aggregate the value of equities of the same issuer in response to Item 32f.
Q: Item 32 — Repurchase agreement. Item 32 requires that a fund describe the securities subject to the repurchase agreement. Some repurchase agreements are collateralized by many, in some circumstances, thousands of securities, some or all of which may have different issuers. Although a fund may aggregate some of the information required by Item 32 for multiple securities of the same issuer, providing the information required by Items 32a-f for securities of each of more than 50 issuers would result in extremely lengthy filings. If a fund’s board of directors (or its delegate) does not rely on the collateral in making its minimal credit risk determination with respect to the repurchase agreement and there are more than 50 issuers of the underlying securities, may the fund provide the information required by Item 32 in a modified form?
A: Yes. If a fund board (or its delegate) is not relying on the collateral to make its determination that a repurchase agreement presents minimal credit risks to the fund and there are more than 50 issuers of the collateral securities, the fund may provide the following information in lieu of the information required by Items 32a-f:
Item 32 a: The fund should select the appropriate range of the number of issuers of the underlying securities from one of the following:
51-100 101-500 501-1000 more than 1000
Item 32b: If the collateral is composed of debt securities, the fund should provide the latest maturity date.
Item 32c: The fund should respond: “N/A.”
Item 32d: The fund should respond “Other Instrument” and provide a brief description of the standard for eligibility of collateral under the repurchase agreement.
Items 32e and 32f: The fund may provide the information in the aggregate for all of the underlying securities.
Q: Item 32 — Repurchase agreement. If a security subject to a repurchase agreement is a zero coupon bond, may the fund respond to Item 32c by stating zero coupon (and not include the yield)?
Q: Items 34, 37, 38, and 39 — Designated NRSRO; credit ratings. On August 19, 2010, Division staff issued a no-action letter indicating that it would not recommend enforcement action if a money market fund board does not designate NRSROs, as required under rule 2a-7, before the Commission has completed the review of rule 2a-7 required by the Dodd Frank Act and has made any modifications to the rule.2 In light of the staff’s letter, must a money market fund provide, as required by Items 34, 34a, 37b-c, 38b-c, and 39c-d, the identity of each Designated NRSRO and the credit rating given by each Designated NRSRO for each security, Demand Feature, Guarantee (or Guarantor), and enhancement (or enhancement provider)?
A: No. Until completion of the Commission’s review of rule 2a-7 pursuant to the Dodd-Frank Act and any modification to the rule, no fund must respond to Items 34 and 34a, or may respond with “N/A”. For items 37b-c, 38b-c and 39c-d, a fund should respond “N/A” or “none”.
Q: Item 36 — Final legal maturity date. Should the security’s final legal maturity date be the same as the date used to calculate the fund’s WAL?
A: Yes. See also footnote 154 of the Adopting Release.
Q: Items 37- 38 — Demand Feature and Guarantee. Items 37 and 38 require funds to provide information pertaining to Demand Features and Guarantees. If a fund is not relying on a Demand Feature or Guarantee to determine the quality, maturity, or liquidity of the security, must the fund provide the information required by Items 37 and 38 for that Demand Feature or Guarantee?
Q: Item 42 — Percentage of net assets invested in the security. If the fund is using the Amortized Cost Method of valuation, should the percentage of the fund’s net assets invested in the security be based on amortized cost?
F. Master Feeder Funds
Q: Should a money market fund that is a feeder fund in a master-feeder structure disclose the master’s portfolio holdings in its Form N-MFP filing?
A: No. The feeder fund should disclose the securities it holds (i.e., the investment in the master fund).
Q: How should a feeder fund respond to the following items on Form N-MFP?
a. Item 11 - WAM
A: A feeder fund should determine its WAM in accordance with rule 2a-7(d)(8).
b. Item 12 - WAL
A: A feeder fund should determine its WAL in accordance with rule 2a-7(d)(8).
c. Items 18 and 25- Shadow Price (Series and Class)
A: The feeder fund should determine the market value of the underlying security, i.e., the market value of the master fund shares held. If the master fund redeems its shares at $1 per share and the feeder fund reasonably believes that the master fund’s shadow NAV is not less than $.995, then the current market value of each share would be $1. The total value of the security held would be equal to the product of $1 and the number of master fund shares held.
d. Item 35 — Maturity date
A: A feeder fund should determine the maturity date of the master fund shares it holds in accordance with rule 2a-7(d)(8).
e. Item 36 — Final legal maturity
A: The final legal maturity date for master fund shares should be the same as the maturity date reported in Item 35 and should be reported in response to this item.
f. Items 37 — 39 — Enhancements and other features
A: A feeder fund should respond “N” (no) to each item.
g. Item 40 — Principal amount
A: A feeder fund should report the principal amount of the master fund securities held by the feeder fund.
h. Item 41 — Current amortized cost
A: If the feeder fund uses the Amortized Cost Method of valuation, it should provide the amortized cost for the master fund shares. If the feeder fund does not use the Amortized Cost Method of valuation, it should respond “N/A.”
i. Item 45 — Current market value, including the value of any capital support agreement
A: If the master fund redeems its shares at $1 per share and the feeder fund reasonably believes that the master fund’s shadow NAV is not less than $.995, then the current market value of each share would be $1. The total value of the security held would be equal to the product of $1 and the number of master fund shares held.
j. Item 46 — Current market value, excluding the value of any capital support agreement
A: A feeder fund must determine the current market value of the security. If the master fund redeems its shares at $1 per share and the feeder fund reasonably believes that the master fund’s shadow NAV is not less than $.995, then the current market value of each share would be $1. The total value of the security held would be equal to the product of $1 and the number of master fund shares held.
G. Money Market Funds Registered Only Under the Investment Company Act
Q: A money market fund that is registered under the Investment Company Act must file Form N-MFP with the Commission. The Commission will make the information filed on Form N-MFP available to the public through the Commission’s website 60 days after the end of the month to which the information applies. If the fund offers and sells its securities without registration under the Securities Act of 1933 in reliance on rule 506 of Regulation D under the Securities Act and/or section 4(2) of that Act, would the fact that the Commission makes the information filed on Form N-MFP available to the public cause the fund to violate the prohibition on general solicitation and advertising in rule 502(c) of Regulation D that applies to rule 506 offerings? Would the fund be able to rely on the section 4(2) non-public offering exemption?
A: The fund will not be deemed to violate the prohibition on general solicitation and advertising in rule 502(c) of Regulation D, so long as it limits the information in the Form N-MFP to the required information and does not otherwise use the Form N-MFP filing to offer its securities publicly or to condition the market for the offering of its securities. Because rule 506 is a safe harbor that provides objective standards that an issuer can rely on to meet the requirements of the section 4(2) exemption, a fund following this guidance regarding the use of the Form N-MFP filing should be deemed to comply with the section 4(2) exemption, if it otherwise complies with rule 506.
H. Public Availability of Form N-MFP’s Technical Specifications (Schema)
Q: When will the technical specifications (schema) for Form N-MFP be available to the public?
A: The technical specifications (schema) for Form N-MFP are available on the SEC website at http://www.sec.gov/info/edgar/formn-mfp-xml-techspecs.htm.
1 Unless otherwise defined in this document, capitalized terms have the meanings provided in rule 2a-7.
2 Investment Company Institute, SEC Staff No-Action Letter (Aug. 19, 2010).