ALLIANCE CAPITAL MANAGEMENT L.P.
Memorandum
June 13, 2000
To: Steve Yu
From: Mary Ann Milley
Re: Alliance Institutional Reserves
Attached are my comments for the
abovementioned Fund's N-SAR Annual Report
at April 30, 2000.
Mf legal\moneyfds\air\n-sar4-00.air
ALLIANCE INSTITUTIONAL RESERVES, INC.
N) - Actions required to be reported pursuant to Rule
2a-7
Amended 2a-7 Procedures
Alliance Institutional Reserves,
Inc.
Policies, Guidelines and Procedures with
Respect to the Stabilization of Net Asset
Value and Compliance with Quality,
Diversification, Maturity and Liquidity Criteria
(the "Procedures")
As Adopted by the Directors of the Fund (the
"Directors")
September 13, 1990 (as amended and restated through
December 9, 1997, July 1, l998 and April 26, 2000)
The Directors have previously determined, in
good faith based upon a full consideration of all
material factors, that it is in the best interests of
each portfolio of the Fund, including any existing
and future portfolios of the Fund (each a
"Portfolio"), and its shareholders to maintain stable
net asset value per share using the Amortized Cost
Method of valuation in accordance with the provisions
of Rule 2a-7 (the "Rule") under the Investment
Company Act of 1940 (the "Act"). A Portfolio may
continue to use such method only so long as the
Directors believe that it fairly reflects the market-
based net asset value per share [2a-7(c)(1)]. The
definitions of the capitalized terms used herein that
are not otherwise defined herein are set forth in
Appendix A, attached hereto.
In supervising each Portfolio's operations and
delegating special responsibilities involving
portfolio management to the Portfolio's investment
adviser (the "Adviser"), the Directors have
undertaken--as a particular responsibility within the
overall duty of care owed to each Portfolio and its
shareholders--to establish the following procedures
which they believe are reasonably designed, taking
into account current market conditions and each
Portfolio's investment objective, to stabilize each
Portfolio's net asset value per share, as computed
for the purpose of distribution, redemption and
repurchase, at $1.00 per share. [2a-7(c)(7)(i)]
These Procedures apply to Taxable Portfolios and Tax-
Exempt Portfolios, as such terms are defined in
Appendix A, and shall be reviewed by the Directors
and reconfirmed with any necessary changes, on an
annual basis.
I. Monitoring of the Fairness of the Valuation
Method
A. Calculation of Deviation of Net Asset Value
from Amortized Cost. The Adviser shall determine at
least weekly the extent of deviation, if any, of the
current net asset value per share of each Portfolio's
investments as determined by using available market
quotations (or an appropriate substitute which
reflects current market conditions) from the
Portfolio's $1.00 amortized cost value per share and
shall maintain records of the determination of the
deviation and the Directors' review thereof. For
each Portfolio, during the period that the deviation
from $1.00 exceeds $.0035, the Adviser will compute
such Portfolio's shadow pricing on a daily basis.
[2a-7(c)(7)(ii)(A)(l), (2) and (3)]
1. Determining Net Asset Value. In
determining net asset value per share based upon
available market quotations, the Adviser shall
value (a) all portfolio securities for which
market quotations are readily available at
market, and (b) all portfolio securities for
which market quotations are not readily
available at their fair value in the best
judgment of the Adviser under the supervision of
the Directors.
2. Determining Market Value of Securities.
In determining the market-based value of any
security, the Adviser may use: (a) actual
quotations of market value; or (b) estimates of
market value, provided that the Directors have
been given an opportunity to review and approve
the method by which such estimates will be made;
or (c) values obtained by reputable sources from
yield data relating to the classes of money-
market securities, provided that any pricing
system based on yield data for selected
securities used by the Adviser must be based
upon market quotations for sufficient numbers
and types of securities to be a representative
sample of each class of security held by the
Portfolio, both in terms of the types of
securities as well as the differing quality of
the securities.
(a) Determining Market Value of Certain
Securities
(i) Discount for Early Redemption
of Certain Securities. A non-negotiable
security which is not treated as an illiquid
security because it may be resold to the
issuer, subject to a penalty for early
redemption, must be assigned a value that
takes into account the reduced amount that
would be received if it were liquidated
currently.
(ii) Valuing Standby Commitments.
A standby commitment means a right to sell a
specified underlying security or securities
within a specified period of time and at an
exercise price equal to the amortized cost
of the underlying security or securities
plus accrued interest, if any, at the time
of exercise, that may be sold, transferred
or assigned only with the underlying
security or securities. A standby
commitment entitles the holder to receive
same day settlement, and will be considered
to be from the party to whom the Portfolio
will look for payment of the exercise price.
A standby commitment may be assigned a fair
value of zero, provided, that (a) the
standby commitment is not used to affect the
Portfolio's valuation of the security or
securities underlying the standby
commitment; and (b) any consideration paid
by the Portfolio for the standby commitment,
whether paid in cash or by paying a premium
for the underlying security or securities,
is accounted for by the Portfolio as
unrealized depreciation until the standby
commitment is exercised or expires.
B. Adviser to Report Deviations to Directors.
The Adviser shall report the results of the
determinations of such deviation to the Directors at
their regularly scheduled meetings, provided,
however, that during periods of high market
volatility, as determined by the Adviser, or at the
request of the Directors, the reports shall be made
to the Directors more frequently.
1. If the deviation between the amortized
cost and market-determined values per share of a
Portfolio's investments exceeds $.004, the
Directors will be notified promptly.
2. If the deviation from amortized cost per
share exceeds $.005, the Directors shall
consider promptly what, if any, action should be
initiated. [2a-7(c)(7)(ii)(B)]
C. Where the Directors believe the extent of
any deviation from a Portfolio's amortized cost price
per share may result in material dilution or other
unfair results to investors or existing shareholders,
they shall take such action as they deem appropriate
to eliminate or reduce to the extent reasonably
practicable such dilution or unfair results. The
actions that may be taken by the Directors include:
[2a-7(c)(7)(ii)(C)]
1. redeeming shares in kind;
2. selling portfolio securities prior to
maturity to realize capital gains or losses or
to shorten the average portfolio maturity of the
Portfolio;
3. adjusting dividends; and
4. utilizing a net asset value per share
determined by using available market quotations.
II. Average Maturity of The Portfolios
A. Portfolio Maturity Limits. Each Portfolio
will maintain a dollar-weighted average portfolio
maturity appropriate to its objective of maintaining
a stable net asset value per share; provided,
however, that a Portfolio will not (i) Acquire any
instrument with a remaining maturity of greater than
397 calendar days, or (ii) maintain a dollar-weighted
average portfolio maturity that exceeds 90 calendar
days. [2a-7(c)(2)(i) and (iii)]
B. Should the disposition of a portfolio
security or some market action cause the dollar-
weighted average portfolio maturity to exceed 90
calendar days, the Adviser hereby is directed to
invest the Portfolio's available cash in a way that
will reduce its dollar-weighted average portfolio
maturity to 90 calendar days or less as soon as
reasonably practicable.
III. Maturity of Portfolio Securities
A. Determination of Maturity. The Adviser
shall not purchase any security for a Portfolio with
a remaining maturity of greater than 397 calendar
days. For the purposes of these Procedures, 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 Portfolio'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 (1) through (8) below: [2a-7(d)]
1. 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 which is a Floating Rate Security shall
be deemed to have a remaining maturity of one
day. [2a-7(d)(1)]
2. 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. [2a-7(d)(2)]
3. 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. [2a-
7(d)(3)]
4. 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. [2a-7(d)(4)]
5. 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. [2a-7(d)(5)]
6. 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. [2a-7(d)(6)]
7. 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. [2a-7(d)(7)]
8. Money Market Fund Securities. If a
Portfolio is permitted to invest in a money
market fund, the investment 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
Portfolio within a shorter time period, in which
case the maturity of such investment shall be
deemed to be the shorter period. [2a-7(d)(8)]
B. Periodic Review. 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 A. 1, 2, or 4 of this Section,
the Adviser shall periodically review whether the
interest rate formula, upon readjustment of the
interest rate, can reasonably be expected to cause
the security to have a market value that approximates
its amortized cost value.
IV. Quality of Portfolio Securities
A. General. A Portfolio must limit its
portfolio investments to those United States Dollar-
Denominated securities that the Adviser determines
present minimal credit risks (which determination
must be based upon factors pertaining to credit
quality in addition to any rating assigned to the
securities by an NRSRO) and that are at the time of
Acquisition Eligible Securities. [2a-7(c)(3)(i)]
Generally, the Rule defines an Eligible Security as
(i) 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 or (ii) an unrated Security
that is determined by the Adviser to be of comparable
quality. [2a-7(a)(10)(i) and (ii)]
The definition of Eligible Security is set forth in
Appendix A hereto.
1. Asset-Backed Securities. 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) shall not be an Eligible
Security unless it has received a rating from an
NRSRO.
2. Demand Features and Guarantees. An
Eligible Security, in the case of a security
subject to a Demand Feature or Guarantee means:
(a) 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:
(i) 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);
(ii) The security subject to the
Guarantee is a repurchase agreement that
is Collateralized Fully; or
(iii) The Guarantee is itself a
Government Security; and
(b) 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). [2a-
7(a)(10)(iii)(A) and (B)]
3. Designated NRSROS. As of the date of
these Procedures, the Securities and Exchange
Commission's (the "Commission") Division of
Market Regulation has designated the following
NRSROs: Duff and Phelps Credit Rating Co.; Fitch
IBCA, Inc.; Moody's Investors Service Inc.;
Standard & Poor's Corp.; and Thomson Bankwatch,
Inc., which is recognized as a NRSRO only with
respect to ratings for debt issued by banks,
bank holding companies, nonbank banks, thrifts,
broker-dealers, and broker-dealers' parent
companies.
B. Second Tier Securities. A Portfolio must
limit its investments in Second Tier Securities as
described in subparagraphs 1 and 2 below. A Second
Tier Security means any Eligible Security that is not
a First Tier Security. A First Tier Security means
any Eligible Security that (i) 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 (ii) is an Unrated Security that is of
comparable quality to a security meeting the
requirements for a Rated Security in clause (i) above
as determined by the Adviser; or (iii) is a security
issued by a money market fund; or (iv) is a
Government Security. [2a-7(a)(12)(i)-(iv)]
Immediately after the Acquisition of any Second Tier
Security:
1. Taxable Portfolios. A Taxable Portfolio
shall not have invested more than five percent
of its Total Assets in securities that are
Second Tier Securities; and [2a-7(c)(3)(ii)(A)]
2. Tax-Exempt Portfolios, A Tax-Exempt
Portfolio shall not have invested more than five
percent of its Total Assets in Conduit
Securities that are Second Tier Conduit
Securities. [2a-7(c)(3)(ii)(B)]
C. Unrated Securities. The term "Unrated
Security" is defined in Appendix A hereto. For
purposes of these Procedures, Unrated Securities are
considered to be of "comparable quality" when, at the
time of purchase by a Portfolio, the Adviser
determines that the purchase is consistent with the
Portfolio's objectives, and (i) such securities are
Government Securities or are repurchase agreements
"Collateralized Fully," as that term is defined in
Appendix A, by such securities, or (ii) the Adviser
has performed the evaluation set forth in paragraph
VII(A), below, and, as a result, has determined that
the securities present a minimal credit risk to the
Portfolio and that the securities are of a quality
comparable to that of securities described in clause
(i) of Section IV.A.
1. Security Subject to Subsequent Credit
Support. A security is not a Rated Security if
it is the subject of 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 18(i) of Appendix A hereto or the
credit support agreement with respect to the
security has received a short-term rating as
provided in paragraph 18(ii) of Appendix A
hereto. [2a-7(a)(19)(iii)]
D. Demand Features and Guarantees.
1. 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. [2a-7(c)(3)(iii)]
2. 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:
(a) The Conditional Demand Feature is
an Eligible Security or First Tier Security,
as the case may be;
(b) At the time of the Acquisition of
the Underlying Security, the Adviser has
determined that there is minimal risk that
the circumstances that would result in the
Conditional Demand Feature not being
exercisable will occur; and
(i) The conditions limiting
exercise either can be monitored readily
by the Adviser, or relate to the
taxability, under federal, state or
local law, of the interest payments on
the security; or
(ii) The terms of the Conditional
Demand Feature require that the
Portfolio will receive notice of the
occurrence of the condition and the
opportunity to exercise the Demand
Feature in accordance with its terms;
and
(c) 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 Adviser 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. [2a-7(c)(3)(iv)(C)]
V. Portfolio Diversification.
Issuer Diversification. Each Portfolio shall be
diversified with respect to the issuers of securities
Acquired by the Portfolio as provided in this Section
V, other than with respect to Government Securities
and securities subject to a Guarantee Issued by A
Non-Controlled Person. [2a-7(c)(4)(i)]:
A. Taxable and National Portfolios.
Immediately after the Acquisition of any security a
Portfolio other than a Single State Portfolio shall
not have invested more than five percent of its Total
Assets in securities issued by the issuer of the
security; provided however, that the Portfolio may
invest up to 25 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 Portfolio may not
invest in the securities of more than one issuer in
accordance with the foregoing proviso in this
paragraph at any time. [2a-7(c)(4)(i)(A)]
B. Single State Portfolios. With respect to 75
percent of its Total Assets, immediately after the
Acquisition of any security, a Single State Portfolio
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
Portfolio 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. [2a-7(c)(4)(i)(B)]
C. Second Tier Securities.
1. Taxable Portfolios. Immediately after
the Acquisition of any Second Tier Security, a
Taxable Portfolio 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. [2a-7(c)(4)(i)(C)(l)]
2. Tax-Exempt Portfolios. Immediately
after the Acquisition of any Second Tier Conduit
Security a Tax-Exempt Portfolio 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. [2a-7(c)(4)(i)(C)(2)]
3. Exception to Diversification
Requirement. The acquisition by a Portfolio of
a Government Security or a security subject to a
Guarantee Issued By A Non-Controlled Person is
not subject to the issuer diversification rules
applicable to the Portfolios.
D. Issuer Diversification Calculations. The
following special rules apply for purposes of making
the above diversification calculations:
1. Repurchase Agreements. The Acquisition
of a repurchase agreement may be deemed to be an
Acquisition of the underlying securities,
provided that the obligation of the seller to
repurchase the securities from the Portfolio is
Collateralized Fully as that term is defined in
Appendix A hereto. [2a-7(c)(4)(ii)(A)]
2. Refunded Securities. The Acquisition of
a Refunded Security is deemed to be an
Acquisition of the escrowed Government
Securities. As provided in the Definition of
Refunded Security in Appendix A hereto, a
Refunded Security requires a certification to
the escrow agent by an independent certified
public accountant that the deposited securities
will satisfy all scheduled payments of
principal, interest and applicable premiums on
the Refunded Securities, provided, however, an
independent public accountant need not have
provided the certification described in this
paragraph if the security, as a Refunded
Security, has received a rating from an NRSRO in
the highest category for debt obligations
(within which there may be sub-categories as
gradations including relative standing). [2a-
7(c)(4)(ii)(B); 2a-7(a)(20)]
3. Conduit Securities. A Conduit Security
is deemed to be issued by the person (other than
the Municipal Issuer) ultimately responsible for
payments of interest and principal on the
security. [2a-7(c)(4)(ii)(C)]
4. Asset Backed Securities.
(a) General. An Asset Backed Security
Acquired by a Portfolio ("Primary ABS")
shall be deemed to be issued by the Special
Purpose Entity that issued the Asset Backed
Security, provided, however:
(i) 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
(ii) 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.
(b) 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 4(a) 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.
(c) Demand Features and Guarantees. In
the case of Ten Percent Obligor deemed to be
an issuer, the Portfolio shall satisfy the
diversification requirements of paragraph E of
this Section with respect to any Demand
Feature or Guarantee to which the Ten Percent
Obligor's obligations are subject. [2a-
7(c)(4)(ii)(D)(1), (2) and (3)]
(d) The Adviser shall periodically
determine the number of Ten Percent Obligors
deemed to be issuers of all or a portion of
the Asset Backed Security for purposes of this
Section V.D.4.; provided however, that the
Adviser need not periodically determine the
number of Ten Percent Obligors with respect to
any Asset-Backed Security that the Adviser 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 this Section V.D.4, and retains a
record of this determination. [2a-
7(c)(9)(iv)].
5. Shares of Other Money Market Funds. A
Portfolio that Acquires shares of another money
market fund in an amount that would otherwise be
prohibited by this Section V will nonetheless be
deemed to be in compliance with these
diversification rules if the Adviser reasonably
believes that the money market fund in which the
Portfolio has invested is in compliance with the
diversification rules of such Section. [2a-
7(c)(4)(ii)(E)]
E. Diversification Rules For Demand Features
and Guarantees. Each Portfolio must be diversified
with respect to Demand Features and Guarantees
Acquired by the Portfolio, 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. [2a-7(c)(4)(iii)]
1. General. Immediately after the
Acquisition of any Demand Feature or Guarantee
or security subject to a Demand Feature or
Guarantee, with respect to 75 percent of the
Total Assets of a Portfolio, no more than ten
percent of the Portfolio's Total Assets may be
invested in securities issued by or subject to
Demand Features or Guarantees from the
institution that issued the Demand Feature or
Guarantee, subject to paragraphs (2) and (3)
below.
2. 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 Portfolio 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.
3. Demand Feature or Guarantee Issued By
Non-Controlled Persons. Immediately after the
Acquisition of any security subject to a Demand
Feature or Guarantee, a Portfolio 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. [2a-
7(c)(4)(iii)(C)]
4. Demand Feature and Guarantee
Diversification Calculations. In making
calculations under the Demand Feature and
Guarantee diversification requirements, the
following rules apply:
(a) 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. [2a-7(c)(4)(iv)(A)]
(b) 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 under "Fractional Demand Features
or Guarantees," in Section V.E.4(a) hereof,
each institution shall be deemed to have
provided the Demand Feature or Guarantee
with respect to the entire principal amount
of the security. [2a-7(c)(4)(iv)(B)]
(c) Demand Features or Guarantees Not
Relied Upon. If the Adviser determines that
the Portfolio is not relying on a Demand
Feature or Guarantee to determine the
quality or maturity or liquidity of the
portfolio security and maintains a record of
this determination, then the Adviser may
disregard the Demand Feature or Guarantee
for all purposes under these Procedures.
The Adviser shall periodically evaluate the
determination made under this section and
report to the Directors any change in the
quality, maturity or liquidity of the
portfolio security. [2a-7(c)(5)]
(d) Diversification Safe Harbor. A
Portfolio that satisfies the applicable
diversification requirements of this Section
V shall be deemed to have satisfied the
diversification requirements of Section
5(b)(l) of the Act.
VI. Security Downgrades.
A. General. In the event that (i) any security
held by a Portfolio 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 Adviser determines that it
is no longer of comparable quality to a First Tier
Security), or (ii) Adviser becomes aware that any
Unrated Security or Second Tier Security held by a
Portfolio has, since the security was Acquired by the
Portfolio, been given a rating by any NRSRO below the
NRSRO's second highest short-term rating category the
Adviser will reassess promptly whether such security
continues to present minimal credit risks and the
Portfolio will take such action as the Adviser
determines is in the best interests of the Portfolio
and its shareholders. [2a-7(c)(6)(i)(A)(1) and (2)]
The reassessments required by an event described in
clauses (i) or (ii) hereof will not be required,
however, if the security has been disposed of (or
matures) within five Business Days of the specified
event and, in the case of events specified in clause
(ii), the Adviser has subsequently notified the
Trustees of the Adviser's actions. [2a-
7(c)(6)(i)(B)]
1. 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 Portfolio's Total
Assets are invested in securities issued by or
subject to Demand Features from a single
institution that are Second Tier Securities, the
Portfolio 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
Directors that disposal of the portfolio
security would not be in the best interest of
the Portfolio. [2a-7(c)(6)(i)(C)]
B. Defaults and Other Events.
1. Disposal of Security. Upon the
occurrence of any of the events specified in
paragraphs (a) through (d) below of this Section
VI.B.1 with respect to a portfolio security, the
Portfolio 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 Directors that disposal
of the portfolio security would not be in the
best interests of the Portfolio (which
determination may take into account, among other
factors, market conditions that could affect the
orderly disposition of the portfolio security):
(a) The default with respect to a
portfolio security (other than an immaterial
default unrelated to the financial condition
of the issuer);
(b) A portfolio security ceases to be
an Eligible Security;
(c) A portfolio security has been
determined to no longer present minimal
credit risks; or
(d) An Event of Insolvency occurs with
respect to the issuer of a portfolio
security or the provider of any Demand
Feature or Guarantee. [2a-7(c)(6)(ii)]
2. 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 securities subject to the Demand
Feature or Guarantee) accounted for 1/2 of 1
percent or more of a Portfolio's Total Assets,
the Portfolio will promptly notify the
Commission of such fact and the actions the
Portfolio intends to take in response to such
situation. Notification to the Commission will
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. [2a-
7(c)(6)(iii)]
3. Defaults for Purposes of Section VI.
For purposes of this Section VI.B.1 and 2 above,
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:
(a) In the case of an instrument
subject to a Demand Feature, the Demand
Feature has been exercised and the Portfolio
has recovered either the principal amount or
the amortized cost of the instrument, plus
accrued interest; or
(b) The provider of the Guarantee is
continuing, without protest, to make
payments as due on the instrument. [2a-
7(c)(6)(iv)]
C. Pricing Committee of the Directors. In
establishing these Procedures, the Directors have
determined that it is appropriate that the
determinations, approvals, ratification, and actions
required to be made or taken from time to time
pursuant to these Procedures be delegated to a
Pricing Committee of the Directors currently
consisting of John D. Carifa, David H. Dievler and
William H. Foulk, Jr., duly constituted in accordance
with the By-Laws of the Fund. Any determination,
approval, ratification, or action taken or made by
such Pricing Committee shall be reported to the
Trustees by the Pricing Committee at the next
scheduled Meeting of the Trustees.
VII. Credit Analysis; Credit Committee
A. Prior to a Portfolio's purchase of any
security, and on an ongoing basis thereafter, the
Adviser must evaluate the creditworthiness of the
issuer of the security, considering all factors that
it deems relevant, which generally shall include a
review of the issuer's financial statements, a
comparison of the issuer's financial position with
those of other companies in the same industry and a
review of the general outlook for the issuer's
industry. Specifically with respect to securities
issued by banks, the factors may include a review of
the profitability, capital adequacy, quality of
assets, liquidity, interest sensitivity and financial
reports of the institution's holding company, if any.
Based upon the foregoing evaluation, the Adviser
shall initially determine, and on an ongoing basis
thereafter shall review its determination, whether a
particular security presents a minimal credit risk to
the Portfolio.
B. The Adviser shall maintain a Credit
Committee composed of such officers of the Adviser as
the Adviser shall from time to time designate.
C. With respect to securities, other than U.S.
Government Securities ("Subject Securities"), the
Credit Committee shall maintain a list of permissible
investments for each Portfolio and shall review
recommendations made by the Adviser's investment
staff regarding additions to, or deletions from, such
list. The Adviser's investment staff shall promptly
notify the Credit Committee in the event that a
security held by a Portfolio defaults as to principal
or interest or, while held by a Portfolio, receives a
rating from the Requisite NRSROs that renders such
security ineligible for purchase by the Portfolio.
D. Notwithstanding paragraph (C) hereof, a
Portfolio may purchase a Subject Security as to which
review by the Credit Committee has not yet been
completed, provided that (i) a Senior Vice President
of the Adviser with responsibility for the investment
management of the Portfolio or, if such person is
not available, another Senior Vice President of the
Adviser has determined that, pursuant to subparagraph
(A) hereof, the Adviser has made a finding that such
Subject Security presents a minimal credit risk to
the Portfolio, and that it appears likely that such
Subject Security will not be available, on terms at
least as favorable as those currently available to
the Portfolio for purchase by the Portfolio as of the
conclusion of Credit Committee review thereof, and
(ii) the Credit Committee completes its review of
such Subject Security as soon as possible thereafter
and, thereupon, either adds the Subject Security to
the Committee's list of permissible investments or
requires the Portfolio to dispose promptly of such
security.
E. At each Regular or Annual Meeting of the
Fund's Directors, the Credit Committee shall (i)
provide the current list of Subject Securities that
the Committee deems to be permissible investments for
each Portfolio, and the current ratings assigned to
each such Subject Security by the Requisite NRSROs,
and a report of additions to, and deletions from,
such list since the preceding meeting, and (ii)
provide to the Directors a representation that (a)
since the preceding meeting each Portfolio has
invested only in securities permitted under its
current investment objectives, policies and
restrictions, and applicable regulations under the
Act, and (b) with respect to each security in which
the Portfolio is invested, and based upon the
Adviser's evaluation of the creditworthiness of the
issuer of such security pursuant to paragraph VII(A),
the Adviser has determined that such security
continues to present minimal credit risks. The
Adviser shall also periodically report to the
Directors on the Adviser's determinations under the
following Sections of these Procedures: Section III.B
(whether interest rate formula of a Floating Rate or
Variable Rate Security can reasonably be expected to
approximate its amortized cost value), Section
IV.D.2(b) (whether there is minimal risk that the
circumstances that would result in a Conditional
Demand Feature not being exercisable will occur),
Section V.D.4(d) (Ten Percent Obligor determination
in the case of ABS) and Section V.E.4(c) (Demand
Features or Guarantees not relied upon).
VIII. Liquidity of Portfolio Investments
A. A Portfolio shall limit its investment in
illiquid securities to less than 10 percent of the
Portfolio's net assets. Illiquid investments include
repurchase agreements not terminable within seven
calendar days, non-negotiable securities which are
not terminable at principal plus accrued interest
within seven days and securities for which no market
exists which are not terminable at principal plus
accrued interest within seven days. However,
securities which may be resold to the issuer subject
to a penalty are not regarded as illiquid if valued
in accordance with these Procedures, provided that
the effect of the penalty is taken into account.
B. In the event that changes in the Portfolio
or other external events cause the investments in
illiquid investments to reach or exceed 10 percent of
the Portfolio's net assets, the Adviser must take
steps to bring the aggregate amount of illiquid
investments within the prescribed limitations as soon
as reasonably practicable, provided, however, that
the Adviser shall not be required to liquidate any
such portfolio investment if the Portfolio would
suffer a loss on the sale of that security.
C. [For each Portfolio except the Tax-Free
Portfolio] A Portfolio may also purchase restricted
securities that are determined to be liquid provided
that each such purchase is in accordance with the
current investment policies of the Portfolio and that
each such security complies in all respects with
these Procedures. The Adviser shall determine whether
a restricted security being considered for purchase
by a Portfolio is liquid on the basis of all relevant
factors, including at least the following factors:
1. the frequency of trades and quotations
for the security;
2. the number of dealers making quotations
to purchase or sell the security;
3. the number of other potential purchasers
of the security;
4. the number of dealers undertaking to
make a market in the security;
5. the nature of the security (including
its unregistered nature) and the nature of the
marketplace for the security (e.g., the time
needed to dispose of the security, the method of
soliciting offers and the mechanics of
transfer); and
6. any applicable Commission interpretation
or position with respect to such type of
securities.
D. [For each Portfolio except the Tax-Free
Portfolio]Commercial paper issued in reliance on
Section 4(2) of the Securities Act of 1933 ("4(2)
Paper") may be determined to be liquid, whether or
not it may be resold under Rule 144A of the
Securities Act of 1933 if the following conditions
are met:
1. the 4(2) Paper must not be traded flat
or in default as to principal or interest;
2. the 4(2) Paper must be rated in one of
the two highest rating categories by at least
two NRSROs, or if only one NRSRO rates the
security, by that NRSRO; if the security is
unrated, the Adviser must determine that the
security is of equivalent quality; and
3. the Adviser must consider the trading
market for the specific security, taking into
account all relevant factors.
E. Following the purchase of a restricted
security or 4(2) Paper by a Portfolio, the Adviser
will monitor continuously the liquidity of such
security. If such a security is determined to have
become illiquid, it shall thereafter be treated in
accordance with Sections VIII (A) and (B) hereof. The
Adviser will report to the Directors at each Regular
and Annual Meeting regarding purchases of restricted
securities since the prior meeting and whether each
restricted security held by a Portfolio has been
determined to be currently liquid.
IX. Special Guidelines for Repurchase Agreements
A Portfolio may engage in repurchase agreement
transactions in conformity with the Portfolio's
investment policies and restrictions. In this
regard, a Portfolio shall enter into repurchase
agreements which are collateralized fully only with
issuers deemed by the Adviser to be creditworthy
within the meaning of Release 13005 under the Act,
taking into account the nature and type of financial
information specified in notes 6 and 10 of said
Release.
X. Records and Reports
A. The Fund will record, maintain, and preserve
the following records:
1. Procedures. For a period of not less
than six years following the replacement of
these Procedures with new Procedures (the first
two years in an easily accessible place), a
written copy of the Procedures (and any
modifications thereto) shall be maintained and
preserved. [2a-7(c)(10)(i)]
2. Trustee 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 Trustees' considerations and actions
taken in connection with the discharge of their
responsibilities, as set forth in these
Procedures, to be included in the minutes of the
Directors' meetings. [2a-7(c)(10)(ii)]
3. 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. [2a-7(C)(10)(iii)]
4. 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 Section III.B (that a Variable Rate
or Floating Rate Security that is not subject to
a Demand Feature and for which maturity is
determined pursuant to Sections III.A(1), (2) or
(4) 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). [2a-7(c)(10)(iv)]
5. 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 the number of Ten Percent Obligors
deemed to be the issuers of all or a portion of
the Asset Backed Security for purposes of
Section V.D.4. The written record shall
include:
(a) The identities of the Ten Percent
Obligors, the percentage of the Qualifying
Assets constituted by the securities of each
Ten Percent Obligor and the percentage of
the Portfolio's Total Assets that are
invested in securities of each Ten Percent
Obligor [2a-7(c)(10)(v)(A)]; and
(b) 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
Section V.D.4 hereof. [2a-7(c)(10)(v)(B)]
6. 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 Section V.E.4(c)
(regarding securities subject to one or more
Demand Features or Guarantees). [2a-
7(c)(10)(vi)]
7. Net Asset Value Deviation. For a period
of not less than 6 years (the first two years in
an easily accessible place) from the date of the
determination of the deviation of the
Portfolio's net asset value from its amortized
cost, a written record of the determination of
such deviation and the Directors' review thereof
shall be preserved and maintained.
B. If any action has been taken pursuant to
Section VI.B (with respect to defaulted securities
and Events of Insolvency) or Section I.B (with
respect to a deviation from the Portfolio's share
price of more than l/2 of one percent), the Fund will
attach 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 Fund will report in an exhibit to the
Form any securities it holds on the final day of the
reporting period that are not Eligible Securities.
[2a-7(c)(10)(vii)]
C. The documents preserved pursuant to these
Procedures 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. [2a-7(c)(10)(vii)]
Mflegal\moneyfds\2a-7amd2000.air
Appendix A
Rule 2a-7 Definitions
(1) Acquisition (or Acquire) shall mean any purchase or
subsequent rollover (but does not include the
failure to exercise a Demand Feature).
(2) Amortized Cost Method of valuation shall mean the
method of calculating an investment company's net
asset value whereby portfolio securities are valued
at the Portfolio's Acquisition cost as adjusted for
amortization of premium or accretion of discount
rather than at their value based on current market
factors.
(3) Asset Backed Security shall mean a fixed income
security (other than a Government Security) issued
by a Special Purpose Entity (as hereinafter
defined), substantially all of the assets of which
consist of Qualifying Assets (as hereinafter
defined). Special Purpose Entity shall mean 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
shall mean 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.
(4) Business Day shall mean any day, other than
Saturday, Sunday, or any customary business
holiday.
(5) Collateralized Fully in the case of a repurchase
agreement shall mean that:
(i) The value of the securities collateralizing
the repurchase agreement (reduced by the
transaction costs (including loss of interest)
that the Portfolio reasonably could expect to
incur if the seller defaults) is, and during
the entire term of the repurchase agreement
remains, at least equal to the Resale Price
(as defined hereinafter) provided in the
agreement;
(ii) The Portfolio or its custodian either has
actual physical possession of the collateral
or, in the case of a security registered on a
book entry system, the book entry is
maintained in the name of the Portfolio or its
custodian;
(iii) The collateral consists entirely of cash
items, Government Securities or other
securities that at the time the repurchase
agreement is entered into are rated in the
highest rating category by the Requisite
NRSROs; and
(iv) Upon an Event of Insolvency with respect to
the seller, the repurchase agreement would
qualify under a provision of applicable
insolvency law providing an exclusion from any
automatic stay of creditors' rights against
the seller.
(v) Resale Price shall mean the Acquisition price
paid to the seller of the securities plus the
accrued resale premium on such Acquisition
price. The accrued resale premium shall be
the amount specified in the repurchase
agreement or the daily amortization of the
difference between the Acquisition price and
the resale price specified in the repurchase
agreement.
(6) Conditional Demand Feature shall mean a Demand
Feature that is not an Unconditional Demand
Feature. A Conditional Demand Feature is not a
Guarantee.
(7) Conduit Security shall mean a security issued by a
Municipal Issuer (as hereinafter defined) 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 shall mean 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:
(i) Fully and unconditionally guaranteed by a
Municipal Issuer; or
(ii) 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
(iii) Related to a project owned and operated by a
Municipal Issuer; or
(iv) 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.
(8) Demand Feature shall mean:
(i) 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:
(a) At any time on no more than 30 calendar
days' notice; or
(b) At specified intervals not exceeding 397
calendar days and upon no more than 30
calendar days' notice; or
(ii) A feature permitting the holder of an Asset
Backed Security unconditionally to receive
principal and interest within 397 calendar days
of making demand.
(9) Demand Feature Issued By A Non-Controlled Person
shall mean a Demand Feature issued by:
(i) 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 shall
mean "control" as defined in section 2(a)(9) of
the Act (15 U.S.C. 80a-2(a)(9)); or
(ii) A sponsor of a Special Purpose Entity with
respect to an Asset Backed Security.
(10) Eligible Security shall mean:
(i) 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
(ii) An Unrated Security that is of comparable
quality to a security meeting the requirements
for a Rated Security in paragraph (10)(i), as
determined by the Adviser; provided, however,
that:
(a) 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;
(b) 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 (7)) shall not be an Eligible
Security unless it has received a rating
from an NRSRO.
(iii) In addition, in the case of a security that is
subject to a Demand Feature or Guarantee:
(a) 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:
(A) 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);
(B) The security subject to the Guarantee
is a repurchase agreement that is
Collateralized Fully; or
(C) The Guarantee is itself a Government
Security; and
(b) 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).
(11) Event of Insolvency shall mean, with respect to a
person:
(i) An admission of insolvency, the application by
the person for the appointment of a trustee,
receiver, rehabilitator, or similar officer for
all or substantially all of its assets, a
general assignment for the benefit of creditors,
the filing by the person of a voluntary petition
in bankruptcy or application for reorganization
or an arrangement with creditors; or
(ii) The institution of similar proceedings by
another person which proceedings are not
contested by the person; or
(iii) The institution of similar proceedings by a
government agency responsible for
regulating the activities of the person,
whether or not contested by the person.
(12) First Tier Security shall mean any Eligible
Security that:
(i) 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
(ii) Is an Unrated Security that is of comparable
quality to a security meeting the requirements
for a Rated Security in paragraph (12)(i), as
determined by the Adviser; or
(iii) Is a security issued by a registered investment
company that is a money market fund; or
(iv) Is a Government Security.
(13) Floating Rate Security shall mean 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.
(14) Government Security shall mean any "Government
security" as defined in section 2(a)(16) of the Act
(15 U.S.C. 80a-2(a)(16)).
(15) Guarantee shall mean 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).
(16) Guarantee Issued by a Non-Controlled Person shall
mean a Guarantee issued by:
(i) 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 (15 U.S.C. 80a-2(a)(9)); or
(ii) A sponsor of a Special Purpose Entity with
respect to an Asset Backed Security.
(17) NRSRO shall mean any nationally recognized
statistical rating organization, as that term is
used by paragraphs (c)(2)(vi)(E), (F) and (H) of
Rule 15c3-1 under the Securities Exchange Act of
1934, that is not an "affiliated person," as
defined in section 2(a)(3)(C) of the Act (15 U.S.C.
80a-2(a)(3)(C)), of the issuer of, or any insurer
or provider of credit support for, the security.
(18) Rated Security shall mean a security that meets the
requirements of paragraphs (18)(i) or (ii), in each
case subject to paragraph (18)(iii):
(i) 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
(ii) 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
(iii) 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 (18)(i) or the credit support
agreement with respect to the security has
received a short-term rating as provided in
paragraph (18)(ii).
(19) Refunded Security shall mean a debt security the
principal and interest payments of which are to be
paid by Government Securities ("deposited
securities") that have been irrevocably placed in
an escrow account pursuant to agreement between the
issuer of the debt security and an escrow agent
that is not an "affiliated person," as defined in
section 2(a)(3)(C) of the Act (15 U.S.C. 80a-
2(a)(3)(C)), of the issuer of the debt security,
and, in accordance with such escrow agreement, are
pledged only to the payment of the debt security
and, to the extent that excess proceeds are
available after all payments of principal,
interest, and applicable premiums on the Refunded
Securities, the expenses of the escrow agent and,
thereafter, to the issuer or another party;
provided that:
(i) The deposited securities shall not be redeemable
prior to their final maturity;
(ii) The escrow agreement shall prohibit the
substitution of the deposited securities unless
the substituted securities are Government
Securities; and
(iii) At the time the deposited securities are placed
in the escrow account, or at the time a
substitution of the deposited securities is
made, an independent certified public
accountant shall have certified to the
escrow agent that the deposited securities
will satisfy all scheduled payments of
principal, interest and applicable premiums
on the Refunded Securities; provided,
however, an independent public accountant
need not have provided the certification
described in this paragraph (19)(iii) if
the security, as a Refunded Security, has
received a rating from an NRSRO in the
highest category for debt obligations
(within which there may be sub-categories
or gradations including relative standing).
(20) Requisite NRSROs shall mean:
(i) Any two NRSROs that have issued a rating with
respect to a security or class of debt
obligations of an issuer; or
(ii) 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
Portfolio Acquires the security, that NRSRO.
(21) Second Tier Security shall mean any Eligible
Security that is not a First Tier Security. Second
Tier Conduit Security shall mean any Conduit
Security that is an Eligible Security that is not a
First Tier Security.
(22) Single State Portfolio shall mean a Tax Exempt
Portfolio 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.
(23) Tax Exempt Portfolio shall mean any Portfolio that
holds itself out as distributing income exempt from
regular federal income tax.
(24) Taxable Portfolio shall mean a Portfolio that is
not a Tax-Exempt Portfolio.
(25) Total Assets shall mean, with respect to a
Portfolio using the Amortized Cost Method, the
total amortized costs of its assets and, with
respect to any other Portfolio, the total
market-based value of its assets.
(26) Unconditional Demand Feature shall mean 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.
(27) United States Dollar-Denominated shall mean, 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.
(28) Unrated Security shall mean a security that is not
a Rated Security.
(29) Variable Rate Security shall mean 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.
s:\mf_legal\moneyds\2a7amd2000air.doc
10
