June 4, 1993
TO: SEC RULES MEMBERS NO. 50-93
MONEY MARKET FUNDS AD HOC COMMITTEE NO. 4-93
RE: SEC STAFF LETTER ON THE PUT DIVERSIFICATION REQUIREMENTS
OF RULE 2a-7
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The Division of Investment Management issued the attached
letter providing interpretive guidance regarding the application
of the put diversification requirements contained in paragraphs
(c)(4)(ii) and (iii) of Rule 2a-7 under the Investment Company
Act to tax-exempt money market funds. In its letter, the staff
responded to four specific questions relating to these
requirements. The staff's responses are summarized below.
First, the staff stated that a money market fund may not
disregard an unconditional put for purposes of compliance with
the put diversification requirements of the Rule, even if the
issuer of the underlying security is of such creditworthiness
that the security itself would be an "Eligible Security" under
Rule 2a-7.
Second, the staff clarified that the put diversification
requirements of Rule 2a-7 apply to all money market funds,
including tax-exempt money market funds that are not diversified
under 5(b) of the 1940 Act.
Third, the staff stated that if more than 10% of a fund's
assets are invested in securities issued by or subject to an
unconditional put from the same institution, thereby exceeding
the 10% threshold of paragraph (c)(4)(iii)(C) of Rule 2a-7, the
puts must be included in the fund's "25% put basket" ( i.e., that
portion of the fund's assets not subject to the diversification
requirement of paragraph (c)(4)(ii), which requires that with
respect to 75% of a tax-exempt money market fund's assets, no
more than 5% may be invested in securities issued by or subject
to puts from the same institution). In addition, if the fund
holds itself out as a diversified fund, it still would be
required to meet the diversification criteria under Section
5(b)(1) of the 1940 Act.
Finally, the staff responded that a fund does not have to
aggregate unconditional puts with conditional puts issued by a
single institution for purposes of the put diversification
requirements of Rule 2a-7.
Amy B.R. Lancellotta
Associate Counsel
Attachment