The SEC's "Division of Investment Management Staff No-Action and Interpretive Letters" web page, which has been housing the "no-action" letters that have documented the majority of advisor support actions involving money funds over the past two years, posted several new entries recently. The Hartford Mutual Funds, Mount Vernon Securities Lending Trust, and Victory Institutional Money Market Fund, Victory Financial Reserves Fund, and Victory Prime Obligations Fund letters all involve extensions and modifications of prior support actions, though Crane Data previously had not listed Hartford on our "bailout" list (which brings the total to 26 advisors).
The SEC's response to The Hartford's letter says, "You state that the Fund holds notes issued by Lehman Brothers Holdings, Inc., and that Lehman obtained an order for relief under the Bankruptcy Code on September 15, 2008, which is an Event of Insolvency under rule 2a-7(a)(II) under the Act. You also state that the Fund has a receivable for amounts due from the Primary Fund, a series of The Reserve Fund.... In September 2008, the Trust and Support Provider entered into a capital support agreement for the benefit of the Fund. The Original Agreement obligates Support Provider to make a cash contribution ... to the Fund sufficient to restore the Fund's net asset value to a specified minimum permissible NAV if certain triggering events occur."
It continues, "The Trust and Support Provider now seek to amend the Original Agreement, and a form of the Amendments was provided to the staff. The principal changes the Trust and Support Provider propose to make to the Original Agreement are to extend the termination date from March 15, 2009 to October 31, 2009, to explicitly permit the Fund's Board of Trustees to cause the Fund to sell the Receivable in certain circumstances described further below, to alter the maximum amount that the Support Provider is required to contribute to the Fund, and to eliminate references to the Notes, which will be purchased by Support Provider in accordance with rule 17a-9 under the Act."
The Mount Vernon Securities Lending Prime Portfolio letter says, "You state that the Fund holds notes issued by Lehman Brothers Holdings, Inc., and that Lehman obtained an order for relief under the Bankruptcy Code on September 15, 2008, which is an Event of Insolvency under rule 2a-7(a)(II) under the Act. You also state that the Fund has a receivable for amounts due from the Primary Fund, a series of The Reserve Fund, and that the Primary Fund is currently in liquidation and it is uncertain when, and to what extent, the Receivable will be paid."
It adds, "In September 2008, the Trust and Support Provider entered into a capital support agreement for the benefit of the Fund. The Original Agreement obligates Support Provider to make a cash contribution ... to the Fund sufficient to restore the Fund's net asset value to a specified minimum permissible NAV if certain triggering events occur.... The Trust and Support Provider now seek to amend the Original Agreement, and a form of the Amendments was provided to the staff. The principal changes the Trust and Support Provider propose to make to the Original Agreement are to extend the termination date from March 15, 2009 to October 31, 2009."
The Victory "no-action" letter says, "You state that as of March 2009, the Victory Institutional Money Market Fund had approximately 0.57 percent of its assets, or $10.5 million, invested in medium-term notes issued by Cheyne Finance LLC, the Victory Financial Reserves Fund had 0.54 percent of its assets, or $3.5 million, invested in medium-term notes issued by Cheyne, and the Victory Prime Obligations Fund had 1.51 percent of its assets, or $11.2 million, invested in medium-term notes issued by Cheyne.... Cheyne is a structured investment vehicle. As a result of downgrades ... they ceased to be Eligible Securities, as defined in rule 2a-7 under the Act."
It adds, "[T]he adviser previously informed the Commission of a default and Event of Insolvency, as defined in rule 2a-7, with respect to the Cheyne Notes. In November 2007, ... KeyCorp established an irrevocable letter of credit.... The term of the letter of credit was extended in July 2008 and, in connection with that extension, was expanded to cover the Prime Obligation Fund and the Reserve Fund.... The Trust, the Adviser, and KeyCorp now seek to amend the Letter of Credit.... The principal change the Trust, the Adviser, and KeyCorp propose to make to the Letter of Credit is to extend the termination date from March 31, 2009 to November 6, 2009."
