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
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
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.