TEXT - Fitch comments on Morgan Stanley Funds plc
Dec 28 - Fitch Ratings says that the announced changes to Morgan Stanley Funds plc (MSF) will not have any impact on the 'AAAmmf' ratings of the umbrella's funds. This has added MSF to a growing list of money market funds (MMF), which have, or are in the process of, implementing structural changes to allow funds to maintain a stable net asset value per share in a negative yield environment. MSF has amended its articles to allow the fund to redeem sufficient shares on a pro-rata basis as is necessary to allow the fund to maintain a stable net asset value per share in a negative yield environment. Through this mechanism, the net asset value of each share remains stable, but the number of shares held may be reduced in the event of the fund suffering a negative net yield. This is the first time that Fitch has publically commented on share class amendments of this exact nature, although Fitch has observed their existence at other fund complexes. Fitch notes that there are other fund complexes that have created different share class structures that result in the same effect. (see 'Fitch: Changes to JPMorgan Liquidity Funds Won't Impact 'AAAmmf' Ratings', dated 17 October 2012 at www.fitchratings.com). In addition, the amendments to the articles allow the fund to redeem all shares in a fund or in a specific class of a fund on 15 days' notice to shareholders if the fund's directors believe the fund or share class is no longer economically viable and that it in the best interests of the shareholders of that class or fund. Negative MMF yields stemming from the short-term market rate environment would not be a negative rating factor per se for Fitch-rated MMFs. Fitch's MMF ratings are and will remain a ranking of funds on the basis of their liquidity, market and credit risk profile (see 'Fitch: Potentially Negative Euro Yields Won't Impact MMF Ratings' dated 18 Sept 2012 at www.fitchratings.com). Fitch acknowledges that MMF yields are consistent with prevailing safety and liquidity costs, commensurate with alternative high-quality short-term instruments. Fitch affirmed all sub funds within the MSF umbrella at 'AAAmmf' on 25 September 2012. Fitch receives weekly fund holdings information and other pertinent fund data from the funds' administrator to conduct surveillance against ratings guidelines and maintain its MMF ratings. At end-November 2012, the sub-funds had the following in assets under management, for the MSF Euro Fund EUR1.2bn, MSF Dollar Fund USD3.3bn, and for the MSF Sterling Fund GBP0.5bn.