4.13.2009 The SEC granted no-action relief to the College Retirement Equities Fund ("CREF"), a registered open-end management investment company under the 1940 Act, allowing it to value the securities in its Money Market Account portfolio using the amortized cost method under Rule 2a 7 under the Act if the Money Market Account operates in accordance with Rule 2a 7 but does not maintain a stable price per share at a single value.
CREF has a unique structure. It issues variable annuity certificates that are funded by eight portfolios, one of which is the Money Market Account. the Money Market Account is, and holds itself out as, a money market fund within the definition of Rule 2a-7(b) and that the Money Market Account complies with the risk limiting requirements of Rule 2a-7(c)(2), (c)(3), and (c)(4) and all other applicable requirements of the rule. Unlike most money market funds, the Money Market Account does not make distributions of income, and therefore does not maintain a stable net asset value. In addition, unlike most money market funds, the Money Market Account does not use the amortized cost method to price its portfolio securities with a remaining maturity of more than 60 days.
CREF has determined that it would be in the best interests of the Account and CREF participants investing in the Account to begin using the amortized cost method to value all of the Money Market Account's portfolio securities. CREF sought no-action relief because of two technical provisions in Rule 2a-7 that could be read to limit use of the amortized cost method to money market funds that maintain a constant price per share at a single value. First, Rule 2a-7(c)(1) states that a money market fund may use the amortized cost method, if the board of directors determines, 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 the amortized cost method, and that the fund will continue to use such method only so long as the board believes that it fairly reflects the market-based net asset value per share. Second, Rule 2a-7(c)(7)(i) provides that the fund's board shall establish written procedures reasonably designed, taking into account current market conditions and the fund's investment objectives, to stabilize the money market fund's net asset value per share at a single value.
CREF argued, and the SEC staff agreed, that there is no fundamental policy reason that the use of the amortized cost method by a money market fund should be tied to maintenance of a single value per share. Accordingly, the SEC staff stated that it would not recommend enforcement action to the SEC against the Money Market Account under Section 2(a)(41) of the 1940 Act and Rules 2a-4 and 22c-1 thereunder if the Account uses the amortized cost method to value all of its portfolio securities.
Click http://www.sec.gov/divisions/investment/noaction/2009/cref041309.htm to access the no-action letter.