[Federal Register Volume 60, Number 143 (Wednesday, July 26, 1995)]
[Proposed Rules]
[Pages 38467-38472]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-18244]



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SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 232, 240, 249 and 270

[Release Nos. 34-35991; IC-21217; S7-22-95]
RIN 3235-AG56


Money Market Fund Quarterly Reporting

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule and rule amendment.

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SUMMARY: The Commission is proposing a new rule under the Investment 
Company Act of 1940 that would require money market funds to file 
quarterly reports with the Commission identifying, describing, and 
providing valuation information for each security in their portfolios. 
The reports would be filed electronically through the Commission's 
EDGAR system. This information would enhance the Commission's ability 
to monitor money market fund compliance with the federal securities 
laws, particularly rule 2a-7 under the 1940 Act, the rule that permits 
money market funds to use special share pricing and portfolio valuation 
methods.

DATES: Comments on the proposed rule and rule and form amendments must 
be received on or before September 27, 1995.

ADDRESSES: Comments should be submitted in triplicate to Jonathan G. 
Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street, 
N.W., Washington, D.C. 20549. All comment letters should refer to File 
No. S7-22-95. All comments received will be available for public 
inspection and copying in the Commission's Public Reference Room, 450 
Fifth Street, N.W., Washington, D.C. 20549.

FOR FURTHER INFORMATION CONTACT: Martha H. Platt, Senior Attorney, 
(202) 942-0725, or Joseph E. Price, Deputy Office Chief, (202) 942-
0721, Office of Disclosure and Investment Adviser Regulation, Division 
of Investment Management, 450 Fifth Street, N.W., Washington, D.C. 
20549.

SUPPLEMENTARY INFORMATION: The Commission is proposing for comment:
    (1) Rule 30b3-1 under the Investment Company Act of 1940 [15 U.S.C. 
80a-1 et seq.] (``1940 Act'') that would require money market funds to 
file with the Commission quarterly reports regarding their portfolio 
holdings; and
    (2) Technical amendments to Regulation S-T [17 CFR 232.301], the 
caCommission's general rules for electronic filings, and rule 12b-25 
[17 CFR 240.12b-25] and Form 12b-25 [17 CFR 249.322] under the 
Securities Exchange Act of 1934 [15 U.S.C. 78a et seq.], to accommodate 
notification of late filings of the quarterly reports.

Table of Contents

Executive Summary

I. Background
II. Discussion
    A. Money Market Fund Portfolio Schedule
    B. Reporting Period
    C. Appendix J to the EDGAR Filer Manual
III. Cost/Benefit Analysis
IV. Transition Period
V. General Request for Comments
VI. Summary of Initial Regulatory Flexibility Analysis
VII. Statutory Authority
Text of Proposed Rule and Form Amendments

Executive Summary

    The Commission is proposing a new rule under the 1940 Act that 
would require money market funds (``money funds'') to file with the 
Commission quarterly reports regarding their portfolio holdings (the 
``Money Market Fund Portfolio Schedule'' or ``Schedule''). The Schedule 
would be 

[[Page 38468]]
filed electronically through the Commission's EDGAR system.
    Rule 30b3-1 would require a money fund to report electronically, 
for each security in its portfolio: (i) The name of the security and 
its issuer and any guarantor of the security; (ii) the security's 
credit quality; (iii) whether it is illiquid; (iv) its value; (v) the 
percentage of the portfolio represented by the security and the 
percentage of the portfolio invested in securities issued by the 
issuer; (vi) its maturity date; and, in the case of an adjustable rate 
instrument, (vii) the formula used for adjusting its interest rate. A 
money fund would also be required to report its yield, average weighted 
maturity, total assets, percentage of net assets invested in illiquid 
securities, certain transactions between the fund and affiliated 
persons, and any difference between the stabilized share price of the 
fund (which is usually $1.00) and the per share net asset value of the 
fund based on the market value of its portfolio as of the end of the 
period. The information contained in the proposed reports would enhance 
the Commission's ability to monitor money fund compliance with the 
federal securities laws, target its limited on-site examination 
resources, and respond in the event of a significant market event 
affecting money funds and their shareholders.

I. Background

    Money funds are permitted to use methods of asset valuation and 
share pricing that depart from the daily pricing requirements of the 
1940 Act 1 and hold themselves out as offering high levels of 
liquidity and safety of principal.2 As a result, money funds are 
subject to substantially greater Commission regulation and monitoring 
of their investment activities than other types of investment 
companies.

    \1\ Section 2(a)(41) of the 1940 Act [15 U.S.C. 80a-2(a)(41)] 
and rules 2a-4 and 22c-1 under the 1940 Act [17 CFR 270.2a-4, 
270.22c-1] require funds to calculate net asset value per share by 
valuing portfolio securities for which market quotations are readily 
available at market value, and other securities and assets at fair 
value as determined in good faith by the board of directors. Money 
funds that seek to maintain a stable share price generally use 
either the amortized cost method of valuation or the penny-rounding 
method of share pricing. Under the amortized cost method, portfolio 
securities are valued by reference to their acquisition cost as 
adjusted for amortization of premium or accretion of discount. 
Paragraph (a)(1) of rule 2a-7 [17 CFR 270.2a-7(a)(1)]. Share price 
is determined under the penny-rounding method by valuing securities 
at market value, fair value, or amortized cost and rounding the per 
share net asset value to the nearest cent. Paragraph (a)(11) of rule 
2a-7. All references to rule 2a-7 or any paragraph of the rule will 
be to 17 CFR 270.2a-7.
    \2\ Because of these characteristics, investors often use money 
funds as a substitute for demand deposits, even though money funds 
are not protected by federal deposit insurance, and there is no 
guarantee that the funds will be able to maintain stable share 
prices.
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    Money funds are subject to rule 2a-7 under the 1940 Act, which 
limits their investments to high quality, short-term, U.S. dollar-
denominated debt instruments.3 Under rule 2a-7, a money fund is 
permitted to use the amortized cost method for valuing its portfolio 
securities and the penny-rounding method of pricing its shares, which 
facilitate the maintenance of a stable share price.4 As a 
condition of using these methods, rule 2a-7 requires, among other 
things, that a money fund's board of directors take certain steps to 
make sure that the fund's use of these pricing methods does not result 
in its shares being unfairly priced.5 These steps include 
periodically determining the extent of deviation, if any, between the 
fund's current net asset value per share calculated using available 
market quotations, and the fund's amortized cost per share, and 
considering what action, if any, should be taken if the deviation is 
greater than one-half of one percent.6 A board of directors of a 
fund using the penny-rounding method is required to assure that the net 
asset value per share, after rounding, does not deviate from the share 
price established for the fund.7

    \3\ Money funds are subject to portfolio quality, maturity, and 
diversification requirements under paragraphs (b), (c)(2), (c)(3), 
and (c)(4) of rule 2a-7. These conditions limit a fund's exposure to 
credit, interest rate, and currency risk. For a discussion of the 
effect of rule 2a-7 on the types of investments made by money market 
funds, see Investment Company Act Rel. No. 21216 (July 19, 1995) at 
n.6 and Sec. II.A.2., a companion release being issued today in 
which the Commission proposes to shorten and simplify money fund 
prospectuses to reflect their unique characteristics and in light of 
the regulatory limitations on those funds.
    \4\ Paragraphs (a) (1) and (11) of rule 2a-7.
    \5\ If a fund's shares are sold or redeemed based on a net asset 
value that either understates or overstates the amount for which 
portfolio instruments could have been sold, the interests of either 
existing shareholders or new investors will be diluted. See 
Investment Trusts and Investment Companies: Hearings on S. 3580 
Before a Subcomm. of the Sen. Comm. on Banking and Currency, 76th 
Cong., 3d Sess. 136-138, 288 (1940).
    \6\ Paragraphs (c)(6)(ii) (A) and (B) of rule 2a-7.
    \7\ Paragraph (c)(7) of rule 2a-7.
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    Pursuant to authority provided in the 1940 Act, the Commission 
periodically inspects money funds to determine compliance with the 
federal securities laws, including rule 2a-7. The Commission annually 
inspected each money fund between 1991 and 1993 in response to a series 
of events that threatened some money funds' ability to maintain a 
stable net asset value.8 The Commission believes that, while not 
preventing money funds from being affected by subsequent market events, 
the frequency of inspections during this period contributed 
substantially to the level of compliance and safety of money funds.

    \8\ In 1989 and 1990, commercial paper issued by Mortgage and 
Realty Trust, Integrated Resources, Inc., and MNC Financial 
Corporation defaulted or was downgraded, resulting in significant 
declines in the securities' market prices, and threatening the 
stable net asset values of the money market funds holding them. In 
1991, New Jersey insurance regulators seized Mutual Benefit Life 
Insurance Company (``MBLI''), a provider of demand features and 
other credit enhancements to securities owned by several money 
market funds. When MBLI could not honor its put obligations, the 
value of MBLI-backed securities declined substantially. Shareholders 
of funds that held these securities were not adversely affected 
because each fund's investment adviser voluntarily purchased the 
paper from the funds at amortized cost or principal amount, 
otherwise agreed to indemnify the fund, or obtained a replacement 
guarantor in order to prevent shareholder losses. See Investment 
Company Act Rel. No. 19959 (Dec. 17, 1993) [58 FR 68585 (Dec. 28, 
1993)] [hereinafter ``Release 19959''] (proposing further amendments 
to tighten the risk-limiting conditions of rule 2a-7) at nn.12 and 
28 and accompanying text.
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    More recently, the Commission has found it necessary to allocate 
its inspection resources among a wider range of investment companies. 
To allow the Commission to provide greater oversight of money funds 
than its on-site examination resources would otherwise permit, the 
Commission is proposing to require money funds to file quarterly 
reports detailing their portfolio holdings, yield, dollar-weighted 
average maturity, illiquid holdings, transactions with affiliated 
persons, and securities valuation practices with the Commission. These 
reports should improve the efficiency and effectiveness of the 
Commission's money fund examination program in several respects. First, 
because the reports would elicit much of the same information regarding 
portfolio securities that would be obtained during an on-site 
examination, the Commission will be able to use the reports to review 
compliance with many of rule 2a-7's requirements without making on-site 
visits. Second, the reports will enable the Commission to target funds 
with investment practices or portfolio holdings that suggest the need 
for on-site examination. Third, information in the reports will permit 
Commission examiners to conduct a significant portion of each on-site 
money market fund examination at Commission offices, reducing 
Commission examination costs and the disruption to funds and their 
advisers. Fourth, information in the reports will enable the Commission 
to respond when a significant market event occurs that could affect 
money funds and their 

[[Page 38469]]
shareholders.9 The availability of a list of portfolio securities 
for each money fund will permit the Commission to identify those funds 
that are holding distressed securities to determine whether they are 
appropriately pricing their securities 10 and taking other steps 
that may be required under rule 2a-7.11 Finally, because the 
reports would be publicly available, they would permit public scrutiny 
of money fund investment practices through the financial press and 
private information services.12 The Commission believes that this 
disclosure may have a salutary effect on money fund investment 
practices, reducing the possibility that a money fund will engage in 
practices that pose risks to its ability to maintain a stable net asset 
value.

    \9\ Supra note 8. In addition, in 1994 a number of money market 
funds that had invested in adjustable rate securities experienced 
losses when these securities' interest rates failed to follow short-
term market rates. See Wayne, ``For Money Market Investors, New 
Cautions,'' N.Y. Times, Sept. 29, 1994 at D1, D8. In one case, a 
money market fund holding these adjustable rate securities was 
forced to liquidate and redeem its shareholders at a price of less 
than $1.00. See de Senerpont Domis and Talley, ``Collapse of Money 
Fund Seen Heightening Derivatives Scrutiny,'' American Banker, Sept. 
29, 1994 at 1, 3. Most recently, a major municipal issuer--Orange 
County--filed for bankruptcy. To maintain their funds' net asset 
values, several money market funds' advisers took steps to prevent 
the net asset value of their funds from falling below $1.00. See 
``Orange County, Mired in Investment Mess, Files for Bankruptcy,'' 
Wall St. J., p.A1 (Dec. 7, 1994).
    \10\ See paragraphs (c)(6)(ii) (B) and (C) of rule 2a-7 (if the 
market value per share for a fund using amortized cost method 
deviates more than one-half of one percent from the fund's share 
price, the board of directors must promptly consider what action, if 
any, should be taken and, to the extent the deviation has dilutive 
or unfair results, take appropriate action to eliminate or reduce 
deviation, including changing the share price). Similarly, because 
the penny-rounding method permits rounding to the nearest one 
percent, if the share price of a fund using the penny-rounding 
method deviates by more than one-half of one percent, the share 
price for the fund could not be maintained. See paragraphs (a)(11) 
and (c)(7) of rule 2a-7.
    \11\ See, e.g., paragraph (c)(5)(i)(A) of rule 2a-7 (requirement 
to reassess promptly whether downgraded security continues to 
present minimal credit risks); paragraph (c)(5)(ii) of rule 2a-7 
(fund must dispose of security that has become ineligible or has 
been determined no longer to present minimal credit risks as soon as 
practicable unless the board of directors finds that disposal of the 
portfolio security would not be in the best interests of the fund).
    \12\ While the reports will be available to individual 
investors, the Commission anticipates that, more typically, 
interested investors will learn about information contained in the 
reports in the specialized financial press that reports on money 
funds and other types of investment companies.
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II. Discussion

    To address the concerns discussed above, the Commission is 
proposing new rule 30b3-1 under the 1940 Act that would require every 
open-end management investment company holding itself out as a money 
fund 13 to file a Money Market Fund Portfolio Schedule with the 
Commission not more than thirty days following the last day of each 
calendar quarter.14 The Schedule, which is described in paragraph 
(d) of proposed rule 30b3-1, would be filed electronically with the 
Commission through the EDGAR system, pursuant to a new appendix to the 
EDGAR Filer Manual, and would be made publicly available.15

    \13\ Paragraph (b) of rule 2a-7 enumerates the types of 
activities that constitute ``holding out'' and that require 
compliance with rule 2a-7.
    \14\ Rule 12b-25 under the Securities Exchange Act of 1934 [17 
CFR 240.12b-25], the general rule regarding notification to the 
Commission of the inability to file timely, and Form 12b-25 [17 CFR 
249.322], the form for notification of late filing, would be amended 
to include reports pursuant to proposed rule 30b3-1 that are filed 
late. A money market fund filing notification of its inability to 
file timely would be required to file its Schedule within five days 
of the due date in accordance with paragraph (b)(2)(ii) of rule 12b-
25.
    \15\ The Commission has adopted a series of rules to mandate and 
accommodate electronic filing through EDGAR. See Securities Act Rel. 
No. 6977 (Feb. 23, 1993) [58 FR 14628 (Mar. 18, 1993)] (adopting 
rules applying to electronic submissions generally); Investment 
Company Act Rel. No. 19284 (Feb. 23, 1993) [58 FR 14848 (Mar. 18, 
1993)] (adopting rules specific to electronic filings by investment 
companies).
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A. Money Market Fund Portfolio Schedule

    The Schedule would require fund portfolio information on a 
security-by-security basis in the following areas:
     Identifying information: the CUSIP number assigned to the 
security,16 the name of the issuer, the name of the issue (Items 
12 (a)-(c)), the names of any providers of puts, demand features, bond 
insurance, or other guarantees for the security (Item 12 (d)),17 
and whether the security is pre-refunded (Item 12(g) or a repurchase 
agreement (Item 12(i));

    \16\ A CUSIP number is an identification number assigned to many 
United States Government, municipal, and corporate securities issues 
through a system administered by Standard & Poor's Corporation under 
the authority of the American Bankers Association Committee on 
Uniform Security Identification Procedure (``CUSIP'').
    \17\ The terms ``put'' and ``demand feature'' would be defined 
by reference to paragraphs (a)(4) and (a)(12) of rule 2a-7.
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     Maturity information: The security's final maturity date 
and maturity date currently used for purposes of determining compliance 
with rule 2a-7's maturity limitations (Items 12 (j) and (k)); 18

    \18\ Money funds are required to maintain a dollar-weighted 
average portfolio maturity of not more than ninety days, and 
generally may not purchase any instrument with a remaining maturity 
of more than 397 days. See paragraph (c)(2) of rule 2a-7. A money 
fund may treat certain adjustable rate securities as having 
maturities equal to the period remaining until the securities' next 
interest rate readjustment date. See paragraph (d) of rule 2a-7.
     Interest rate information: The rate of interest the 
security was paying on the last day of the reporting period (Item 
12(p)); whether the security is subject to any special interest rate 
features, such as a future change in rate structure from variable to 
fixed (Item 12(s)),19 or an interest rate cap (Item 12(t)); 
20 and, for an adjustable rate security, the interest rate reset 
formula and the frequency of the interest rate reset (e.g., weekly, 
monthly, or quarterly) (Items 12(q) and (r));

    \19\ Such features would be required to be disclosed whether or 
not the triggering conditions have occurred.
    \20\ While the staff has interpreted rule 2a-7 as not permitting 
money market funds to use the maturity shortening provisions of the 
rule when determining the maturity of capped floaters that do not 
have demand features, this position has not been applied if the cap 
is set to comply with state usury laws and is in excess of twenty 
percent. See Investment Company Institute (pub. avail. June 16, 
1993). For a discussion regarding determining the maturity of capped 
floaters under rule 2a-7, see Release 19959, supra note 8 at n.161.
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     Credit quality information: Whether the security is 
treated as ``unrated'' and/or ``second tier'' for purposes of rule 2a-7 
(Items 12 (e) and (f)); 21

    \21\ See paragraphs (a) (14) and (20) of rule 2a-7. The 
particular ratings assigned to a security would not be required in 
the report.
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     Liquidity: Whether the security is illiquid (Item 12(h)); 
22

    \22\ A money market fund may hold up to ten percent of its net 
assets in illiquid securities. See Investment Company Institute 
(pub. avail. Dec. 9, 1992). The staff intends to revise Guide 4 to 
Form N-1A, as discussed in the companion release being proposed 
today, supra note 3 at Sec. III, to clarify the Commission's policy 
that money market funds may not invest more than ten percent of 
their assets in illiquid securities.
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     Valuation information: For all funds, the market value of 
the security, based on quotations obtained not more than ten business 
days prior to the end of the quarter (Item 12(l)); and, for funds using 
the amortized cost method, the amortized cost of the security and any 
deviation between the amortized cost and market values (Item 12(m)); 
and
     Diversification information: The percentage of the fund's 
``total assets'' represented by the position, and the percentage of the 
fund's ``total assets'' represented by all securities issued by the 
issuer of this security (Items 12 (n) and (o)).
    The Schedule would also require a fund to categorize itself by fund 
type (Item 3) 23 and to provide other 

[[Page 38470]]
information regarding the portfolio as a whole:

    \23\ The fund would describe itself as primarily distributing 
income that is taxable or tax-exempt and, if tax-exempt, whether the 
fund is a Single State Fund (as defined in paragraph (a)(22) of rule 
2a-7, as proposed to be amended; see Release 19959, supra note 8). 
The fund would also indicate whether it sells shares to retail 
investors or only to institutions.
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     For funds using the amortized cost method, the per share 
net asset value based on the market value of the portfolio; for funds 
using the penny-rounding method, the per share net asset value prior to 
rounding; for funds using both methods, both figures (Item 6);
     The fund's seven-day yield (Item 7); 24

    \24\ The yield quoted would be based on the seven days ending on 
the last day of the reporting period and would be calculated in 
accordance with Item 22(a)(i) of Form N-1A.
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     The dollar-weighted average maturity (Item 8); 25

    \25\ See supra, note 18.
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     Total assets (Item 9); 26

    \26\ ``Total Assets'' is defined in paragraph (a)(18) of rule 
2a-7 as meaning, for a money fund using the amortized cost method, 
the total amortized cost of its assets and, for any other fund, the 
total market-based value of its assets.
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     The percentage of net assets invested in illiquid assets 
(Item 10); and
     Certain transactions between the fund and affiliated 
parties that occurred during the quarter that are intended to stabilize 
the fund's per share net asset value, including any sale of a portfolio 
security for a price greater than its current market value (Item 
11).27

    \27\ Examples of these transactions include the sale of 
portfolio securities to an affiliated person of the fund, a 
contribution to the fund's net assets by an affiliated person, or 
the purchase of a credit enhancement for a portfolio security by an 
affiliate on the fund's behalf. Certain of these types of 
transactions are prohibited by section 17(a)(2) of the 1940 Act. The 
staff has taken the position regarding some of these transactions, 
based on the particular facts and circumstances involved, that an 
enforcement action would not be recommended to the Commission so 
long as certain conditions were met. The Commission proposed rule 
17a-9 under the 1940 Act in 1993 to exempt these transactions from 
section 17(a) if certain conditions were met. See Release 19959, 
supra note 8, at Sec. IV.
    Related party transactions are required to be identified in fund 
financial statements. See 17 CFR 210.4-08(k); Statement of Financial 
Accounting Standards No. 57 (Related Party Disclosures), Financial 
Accounting Standards Board (Mar. 1982). See also Letters to Chief 
Financial Officers from Lawrence A. Friend, Chief Accountant, 
Division of Investment Management (Nov. 1, 1994 and Feb. 3, 1995).
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    The Commission will consider including a requirement that 
information regarding the fund's compliance with the put 
diversification requirements of rule 2a-7 be provided in the Schedule. 
The Commission requests comment whether holdings of Treasury bills and 
repurchase agreements with the same counterparty that are 
collateralized fully, as well as other types of securities that 
commenters may suggest, should be grouped and not reported 
individually.28 The Commission also requests comment on whether, 
instead of requiring that money funds indicate whether a security is 
illiquid, the rule should require funds to indicate whether the value 
of the security is being determined in good faith by the fund's board 
of directors.

    \28\ The term ``Collateralized Fully'' would be defined by 
reference to paragraph (a)(4) of rule 2a-7, as proposed to be 
amended in Release 19959, supra note 8 at Sec. II.D.3.
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B. Reporting Period

    The proposed report would contain information as of the end of each 
calendar quarter, rather than fund fiscal quarters, so that the 
Commission may compare fund portfolio data and aggregate certain of the 
information to obtain industry-wide data. The Commission requests 
comment whether the reporting burden would be significantly reduced if 
reporting was required as of the end of the fund's fiscal quarter.

C. Appendix J to the EDGAR Filer Manual

    All money funds would be required to file their Schedules through 
the EDGAR system.29 Detailed instructions regarding the manner in 
which responses to the information items of rule 30b3-1 would be 
provided would be set forth in a new Appendix J to the EDGAR Filer 
Manual: Guide for Electronic Filing with the U.S. Securities and 
Exchange Commission.30 Appendix J provides instructions regarding 
important technical topics, such as how the information required by an 
item in the Schedule should be ``tagged,'' how to describe certain 
types of securities, what types of errors in the reports will result in 
the suspension or rejection of a filing, and sections of rule 2a-7 to 
which the fund should refer when responding to particular items.31 
The Commission expects that if the proposals are adopted, funds will 
use an automated process to construct their Schedules from their 
existing computer systems, so that Schedules can be prepared and 
transmitted without extensive additional data entry. Appendix J is 
designed to facilitate this process. Comment is requested on ways to 
further facilitate preparation of Schedules in this manner. Comment is 
also requested whether funds would be substantially assisted if the 
quarterly report could be transmitted not only in ASCII format, but in 
a format generated by widely-used or easily translated commercial 
software. The Commission is also considering alternative methods for 
receiving the data through EDGAR, including tag-less submissions.

    \29\ The final phase-in of investment companies to the EDGAR 
system is scheduled for November 1995. As proposed, the Schedule 
would only be filed electronically, and rule 30b3-1(c)(4) would 
waive the filing requirement for the period of any temporary 
hardship or continuing hardship exemption under Regulation S-T [17 
CFR 232.201 and .202].
    \30\ The September 1994 edition of the EDGAR Filer Manual 
(Release 4.10) has been incorporated into the Code of Federal 
Regulations by reference. See 17 CFR 232.301. The amendments to the 
manual being proposed in this release would also be incorporated by 
reference into the Code of Federal Regulations following their 
adoption.
    \31\ A ``tag'' is used to identify information required in an 
EDGAR filing. 17 CFR 232.11(u).
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III. Cost/Benefit Analysis

    The rule and rule amendments proposed today are intended to provide 
information to the Commission and to the public that can be used to 
improve the money fund inspection capability of the Commission, money 
fund compliance with the federal securities laws, and investor 
protection. The proposals would enable the Commission to better target 
its on-site examinations of money funds and to respond in the event of 
market events that affect money funds and their shareholders.
    The information required in the Schedule for each security is (or 
should be) maintained by money funds to ensure compliance with rule 2a-
7 under the 1940 Act. The Commission has designed the Schedule and the 
EDGAR filing instructions in Appendix J to facilitate direct transfer 
of information from fund computer systems. As a result, the Commission 
anticipates that the majority of the costs experienced by funds will 
result from initial efforts to revise data capture systems. In 
addition, because the Schedules would need to be prepared and delivered 
electronically only, there would be no burdens associated with printing 
and mailing. Finally, quarterly reporting should result in fewer on-
site money fund inspections and related costs for funds that appear to 
be in compliance with the federal securities laws, based on information 
provided in the quarterly reports.
    While adoption of the proposed rule and form would impose some 
additional costs on money funds, the Commission has attempted to strike 
a balance between the Commission's need for additional information from 
money funds about their portfolio securities and the costs of funds 
providing that information. The Commission requests comment regarding 
these costs and benefits, and reasonable alternatives for achieving the 
benefits of the proposed rule.
IV. Transition Period

    If proposed rule 30b3-1 is adopted, the Commission would conduct a 
series of test filings to test both the filing 

[[Page 38471]]
process and to enable funds to develop the capability to transfer the 
information required in the Schedules from existing computer files. The 
Commission asks that funds that wish to participate in the test filing 
process so indicate in their comment letters.32 The Commission 
anticipates that temporary rules would be adopted during this period. 
The Commission will consider comments for purposes of adopting both 
temporary and permanent rules. For other filers, the Commission plans 
to make the proposed amendments effective sixty days following the 
completion of the test filing period. All money funds would be required 
to file Money Market Fund Portfolio Schedules under rule 30b3-1 
beginning with the first complete calendar quarter following conclusion 
of the sixty day period.

    \32\ Information submitted in test filings by volunteering funds 
during the test period would be treated by the Commission as non-
public.
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V. General Request for Comments

    All interested persons who wish to submit written comments on the 
proposed rule and form discussed in this release, or to comment on 
related matters that might have a significant effect upon the proposals 
discussed in this release, are requested to do so. Commenters 
suggesting alternative approaches are encouraged to submit proposed 
text.

VI. Summary of Initial Regulatory Flexibility Analysis

    The Commission has prepared an Initial Regulatory Flexibility 
Analysis in accordance with 5 U.S.C. 603 regarding the proposed 
amendments. The Analysis notes that the proposed amendments are 
intended to elicit from money funds information that would improve the 
Commission's ability to monitor the funds' compliance with the federal 
securities laws. Pertinent information reflected in the Cost Benefit 
Analysis section of this Release is also reflected in the analysis. A 
copy of the Initial Regulatory Flexibility Analysis may be obtained by 
contacting Martha H. Platt, Mail Stop 10-6, Securities and Exchange 
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549.

VII. Statutory Authority

    The Commission is proposing rule 30b3-1 pursuant to sections 13 [15 
U.S.C. 78m], 15(d) [15 U.S.C. 78o(d)] and 23(a) [15 U.S.C. 78w(a)] of 
the Securities Exchange Act of 1934 and sections 8 [15 U.S.C. 80a-8], 
30 [15 U.S.C. 80a-29], 31 [15 U.S.C. 80a-30], 38 [15 U.S.C. 80a-37], 
and 45 [15 U.S.C. 80a-44] of the 1940 Act. The authority citations for 
the proposals precede the text of the rule and appendix.

Text of Proposed Rule and Form Amendments

List of Subjects in 17 CFR Parts 232, 240 and 270

    Investment companies, Reporting and recordkeeping requirements, 
Securities.

    For the reasons set out in the preamble, the Commission is 
proposing to amend Chapter II, Title 17 of the Code of Federal 
Regulations as follows:

PART 232--GENERAL RULES AND REGULATIONS FOR ELECTRONIC FILINGS

    1. The authority citation for Part 232 continues to read as 
follows:

    Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s(a), 77sss(a), 
78c(b), 78l, 78m, 78n, 78o(d), 78w(a), 78ll(d), 79t(a), 80a-8, 80a-
29, 80a-30 and 80a-37.

    2. Section 232.101 is amended by removing the word ``and'' at the 
end of paragraph (a)(1)(iv), removing the period at the end of 
paragraph (a)(1)(v) and in its place adding ``; and'' and adding 
paragraph (a)(1)(vi) to read as follows:


Sec. 232.101  Mandated electronic submissions and exceptions.

    (a) * * *
    (1) * * *
    (vi) Quarterly reports filed by money market funds pursuant to rule 
30b3-1 (Sec. 270.30b3-1 of this chapter).
* * * * * * *

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 
1934

    3. The authority citation for Part 240 continues to read in part as 
follows:

    Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77eee, 77ggg, 
77nnn, 77sss, 77ttt, 78c, 78d, 78i, 78j, 78l, 78m, 78n, 78o, 78p, 
78q, 78s, 78w, 78x, 78ll(d), 79q, 79t, 80a-20, 80a-23, 80a-29, 80a-
37, 80b-3, 80b-4 and 80b-11, unless otherwise noted.
* * * * *


Sec. 240.12b-25  [Amended]

    4. By amending Sec. 240.12b-25 by revising the section heading to 
read as follows:
    Sec. 240.12b-25 Notification of inability to timely file all or any 
required portion of a Form 10-K, 10-KSB, 20-F, 11-K, N-SAR, 10-Q, 10-
QSB or report filed pursuant to rule 30b3-1.
    5. By amending Sec. 240.12b-25, paragraph (a), by adding the 
following phrase after the first ``thereunder'':
    ``, or all or any required portion of a quarterly report filed by a 
money market fund pursuant to rule 30b3-1 under the Investment Company 
Act of 1940 (17 CFR 270.30b3-1);''
    6. By amending Sec. 240.12b-25, paragraph (b)(2)(ii), by adding the 
following phrase after ``10-QSB,'':
    ``or report filed pursuant to rule 30b3-1 under the Investment 
Company Act of 1940 (17 CFR 270.30b3-1),''.
* * * * *
    7. By amending Sec. 240.12b-25, paragraph (g), by removing the 
period at the end of the paragraph and adding in its place ``or, for a 
quarterly report filed by a money market fund, comply with Rule 30b3-
1(c)(3) under the Investment Company Act (17 CFR 270.30b3-1(c)(3)).''

PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934

    8. The authority citation for Part 249 continues to read in part as 
follows:

    Authority: 15 U.S.C. 78a, et seq., unless otherwise noted;
* * * * *


Sec. 249.322  [Amended]

    9. By amending Sec. 249.322, paragraph (a), by adding the following 
phrase after ``section 13 or 15(d) of the Act'':
    ``or quarterly report filed by a money market fund pursuant to rule 
30b3-1 under the Investment Company Act of 1940,''.

* * * * *
    Note: Form 12b-25 does not and the amendments will not appear in 
the Code of Federal Regulations.

    10. Form 12b-25 (referenced in Sec. 249.322) is amended by adding 
the following after ``[ ] Form N-SAR'' to read: ``[ ] Money Market Fund 
Rule 30b3-1 Filing''.
    11. Form 12b-25 (referenced in Sec. 249.322) is amended by adding 
the following after ``Form 10-Q'' in paragraph (b) of Part II, to read: 
``or filing made by a money market fund pursuant to rule 30b3-1''.
    12. Form 12b-25 (referenced in Sec. 249.322) is amended by adding 
the following after ``Form 10-Q,'' in Part III: ``or filing made by a 
money market fund pursuant to rule 30b3-1''.
PART 270--RULES AND REGULATIONS, INVESTMENT COMPANY ACT OF 1940

    13. The authority citation for Part 270 continues to read in part 
as follows:

    Authority: 15 U.S.C. 80a-1 et seq., unless otherwise noted.

    14. By adding Sec. 270.30b3-1 to read as follows: 

[[Page 38472]]



Sec. 270.30b3-1  Quarterly report for money market funds.

    (a) General. Every open-end management investment company 
registered under the 1940 Act that holds itself out as a money market 
fund (``money market fund'') shall file a Money Market Fund Portfolio 
Schedule (``Schedule'') containing the information set forth in 
paragraph (d) of this section with the Commission not more than thirty 
days after the last day of each calendar quarter.
    (b) Format and filing of schedule. The Schedule shall be filed 
through the EDGAR system and prepared in the format prescribed in 
Appendix J to the EDGAR Filer Manual. Money market funds also shall 
refer to Regulation S-T [17 CFR 232.10 through 232.903] regarding the 
general rules for electronic filings on the EDGAR system.
    (c) Special rules. (1) Master/feeder arrangements. A money market 
fund that is a ``feeder fund,'' as that term is defined in General 
Instruction I to Form N-1A [17 CFR 239.15A and 274.11A], is not 
required to file a Schedule.
    (2) Series funds. Each series of a series fund shall be considered 
to be a separate investment company for purposes of this section.
    (3)(i) Temporary hardship exemptions. If a money market fund 
experiences unanticipated technical difficulties preventing the timely 
preparation and submission of its Schedule, the money market fund shall 
submit a written statement to the Commission no later than one business 
day after the date on which the Schedule was to be filed stating that 
the fund requires a temporary hardship exemption. A money market fund 
that has taken advantage of a temporary hardship exemption with regard 
to the filing of the Schedule shall electronically file its Schedule 
within six days of filing its written notification to the Commission. 
(ii) Continuing hardship exemptions. A money market fund may apply in 
writing for a continuing hardship exemption in accordance with 
paragraphs (a), (b), and (d) of Sec. 232.202 of this chapter.
    (d) Contents of money market fund portfolio schedule. The Schedule 
shall set forth the information specified in this paragraph that is 
applicable to the money market fund. Where the context requires, 
capitalized terms are used as defined in Sec. 270.2a-7.

Item 1.
    Item 1(a) Name of registrant.
    Item 1(b) CIK number of registrant.
    Item 1(c) Investment Company Act File Number of registrant.
Item 2.
    Item 2(a) Name of money market fund.
    Item 2(b) Name of person that should be contacted regarding the 
information contained in this report.
    Item 2(c) Telephone number of person named in response to Item 
2(b).
    Item 2(d) Securities Act File Number for money market fund.
    Item 2(e) If the Schedule pertains to a separate series of a 
series company, or to a sub-account of an insurance company separate 
account, assign a number to the series that the series will be 
identified by in all future filings. If a number has previously been 
assigned to the series in a report on Form N-SAR, use that number.
Item 3. Indicate whether the fund is a Tax Exempt Fund and, if so, 
whether it is a Single State Fund and the state in which the 
securities in which it invests are exempt from taxation. For a 
taxable fund, indicate whether the fund invests only in Government 
Securities and repurchase agreements, or in other securities as 
well.
Item 4. Indicate whether the fund sells shares to institutional 
investors only.
Item 5. State the last day of the quarter for which this information 
is filed.
Item 6. If the fund uses the Penny-Rounding Method of pricing, state 
the per share net asset value of the fund before rounding. If the 
fund uses the Amortized Cost Method of valuation, state the per 
share net asset value of the fund based on the available market 
quotations obtained most recently by the fund but not more than ten 
business days prior to the end of the quarter (or an appropriate 
substitute that reflects current market conditions) for the 
securities in the portfolio. If the fund uses both methods, provide 
both figures.
Item 7. State the fund's yield for the seven days ended on the last 
day of the quarter for which this Schedule is filed, computed in 
accordance with Item 22(a)(i) of Form N-1A, 17 CFR 239.15A and 
274.11A.
Item 8. State the dollar-weighted average portfolio maturity 
calculated for purposes of determining compliance with paragraph 
(c)(2) of Sec. 270.2a-7 on the last day of the quarter.
Item 9. State the Total Assets of the fund on the last day of the 
quarter.
Item 10. State the percentage of net assets of the fund invested in 
illiquid assets on the last day of the quarter.
Item 11. State whether, at any time during the quarter, an 
affiliated person of the fund, or any affiliated person of such 
person:
    (a) purchased a security from the fund at a price in excess of 
the security's market value;
    (b) obtained or provided liquidity or credit support for a 
security in the fund's portfolio; or
    (c) contributed cash or other assets to the fund to offset a 
realized or unrealized loss on an investment made by the fund.
Item 12. Provide the following information for each security owned 
by the fund as of the last day of the quarter for which this 
information is filed, where applicable:
    Item 12(a) CUSIP number.
    Item 12(b) Name of issuer of security.
    Item 12(c) Name of issue.
    Item 12(d) (1)-(4) Names of issuers of Puts, Demand Features, 
bond insurance, and other guarantees.
    Item 12(e) Whether the security is an Unrated Security.
    Item 12(f) Whether the security is a Second Tier Security.
    Item 12(g) Whether the security is a Refunded Security.
    Item 12(h) Whether the security is an illiquid security.
    Item 12(i) Whether the security is a repurchase agreement that 
is Collateralized Fully.
    Item 12(j) Stated maturity date.
    Item 12(k) Maturity date for purposes of Sec. 270.2a-7.
    Item 12(l) Market value, based on the quotations obtained most 
recently by the fund but not more than ten business days prior to 
the end of the quarter.
    Item 12(m) In the case of a fund using the Amortized Cost Method 
of valuation:
    Item 12(m)(i) the amortized cost of the security; and
    Item 12(m)(ii) the ratio of Item 12(l) to Item 12(m)(i).
    Item 12(n) The percentage of the fund's Total Assets represented 
by this security.
    Item 12(o) The percentage of the fund's Total Assets comprised 
by all securities currently held by the fund that have been issued 
by this issuer.
    Item 12(p) Rate of interest the security was paying on the last 
day of the period for which this information is being filed.
    Item 12(q) For a Floating Rate Instrument or a Variable Rate 
Instrument, the formula for determining the interest rate the 
security will pay.
    Item 12(r) For a Floating Rate Instrument or a Variable Rate 
Instrument, the frequency with which the security's interest rate 
will be reset.
    Item 12(s) Indicate whether the security's characterization as 
fixed rate, Floating Rate, or Variable Rate is subject to change as 
the result of one or more triggering events. Briefly describe the 
triggering events in the form of a formula.
    Item 12(t) Indicate whether the security is subject to an 
interest rate cap. Describe the cap in the form of a formula.

    Dated: July 19, 1995.

    By the Commission.
Margaret H. MacFarland,
Deputy Secretary.
[FR Doc. 95-18244 Filed 7-25-95; 8:45 am]
BILLING CODE 8010-01-P