Securities Lawyer's Deskbook                          published by The University of Cincinnati College of Law

Rule 12d1-1 -- Exemptions for Investments in Money Market Funds

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1. Exemptions for acquisition of money market fund shares. If the conditions of paragraph (b) of this section are satisfied, notwithstanding sections 12(d)(1)(A), 12(d)(1)(B), 17(a), and 57 of the Act, and Rule 270.17d-1:
   
   
   1. An investment company ("acquiring fund") may purchase and redeem shares issued by a money market fund; and
      
      
   2. A money market fund, any principal underwriter thereof, and a broker or a dealer may sell or otherwise dispose of shares issued by the money market fund to an acquiring fund.
      
      
2. Conditions
   
   
   1. Fees. The acquiring fund pays no sales charge, as defined in rule 2830(b)(8) of the Conduct Rules of the NASD ("sales charge"), or service fee, as defined in rule 2830(b)(9) of the Conduct Rules of the NASD, charged in connection with the purchase, sale, or redemption of securities issued by a money market fund ("service fee"); or the acquiring fund's investment adviser waives its advisory fee in an amount necessary to offset any sales charge or service fee.
      
      
   2. Unregistered money market funds. If the money market fund is not an investment company registered under the Act:
      
      
      1. The acquiring fund reasonably believes that the money market fund satisfies the following conditions as if it were a registered open-end investment company:
         
         
         1. Operates in compliance with Rule 270.2a-7
            
            
         2. Complies with sections 17(a), (d), (e), 18, and 22(e) of the Act (15 U.S.C. 80a-17(a), (d), (e), 80a-18, and 80a-22(e));
            
            
         3. Has adopted procedures designed to ensure that it complies with sections 17(a), (d), (e), 18, and 22(e) of the Act (15 U.S.C. 80a-17(a), (d), (e), 80a-18, and 80a-22(e)), periodically reviews and updates those procedures, and maintains books and records describing those procedures;
            
            
         4. Maintains the records required by Rule 270.31a-1(b)(1), 270.31a-1(b)(2)(ii), 270.31a-1(b)(2)(iv), and 270.31a-1(b)(9); and
            
            
         5. Preserves permanently, the first two years in an easily accessible place, all books and records required to be made under paragraphs (b)(2)(i)(C) and (D) of this section, and makes those records available for examination on request by the Commission or its staff; and
            
            
      2. The adviser to the money market fund is registered with the Commission as an investment adviser under section 203 of the Investment Advisers Act of 1940.
         
         
   3. Exemption from certain monitoring and recordkeeping requirements under Rule 270.17e-1. Notwithstanding the requirements of Rule 270.17e-1(b)(3) and 270.17e-1(d)(2), the payment of a commission, fee, or other remuneration to a broker shall be deemed as not exceeding the usual and customary broker's commission for purposes of section 17(e)(2)(A) of the Act if:
      
      
      1. The commission, fee, or other remuneration is paid in connection with the sale of securities to or by an acquiring fund;
         
         
      2. The broker and the acquiring fund are affiliated persons because each is an affiliated person of the same money market fund; and
         
         
      3. The acquiring fund is an affiliated person of the money market fund solely because the acquiring fund owns, controls, or holds with power to vote five percent or more of the outstanding securities of the money market fund.
         
         
   4. Definitions.
      
      
      1. Investment company includes a company that would be an investment company under section 3(a) of the Act (15 U.S.C. 80a-3(a)) but for the exceptions to that definition provided for in sections 3(c)(1) and 3(c)(7) of the Act (15 U.S.C. 80a-3(c)(1) and 80a-3(c)(7)).
         
         
      2. Money market fund means:
         
         
         1. An open-end management investment company registered under the Act that is regulated as a money market fund under Rule 270.2a-7; or
            
            
         2. A company that would be an investment company under section 3(a) of the Act (15 U.S.C. 80a-3(a)) but for the exceptions to that definition provided for in sections 3(c)(1) and 3(c)(7) of the Act (15 U.S.C. 80a-3(c)(1) and 80a-3(c)(7)) and that:
            
            
            1. Is limited to investing in the types of securities and other investments in which a money market fund may invest under Rule 270.2a-7; and
               
               
            2. Undertakes to comply with all the other requirements of Rule 270.2a-7, except that, if the company has no board of directors, the company's investment adviser performs the duties of the board of directors.
               
               

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