What is the board’s responsibility in the event that a security in a money market fund’s portfolio is downgraded or defaults?
If a security in the fund’s portfolio is downgraded, the fund’s board (or its delegate, such as the fund’s adviser) must promptly determine whether the security continues to present minimal credit risk and must cause the fund to take whatever action is determined to be in the fund’s best interests. If a security defaults, the fund must dispose of the security as quickly as possible, unless the fund’s board determines that to do so would not be in the fund’s best interests. When a downgrade, default, or other development threatens to lower the fund’s NAV below $1.00, an affiliate of the fund may take certain actions to prevent this occurrence. In some cases, the fund’s adviser or affiliate will purchase the troubled security. This type of action should be brought to the board’s attention, and in some instances, may require SEC approval.