UNITED STATES 

SECURITIES AND EXCHANGE COMMISSION
 

WASHINGTON. D.C. 20549
 

September 26, 1997
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Mr. Geoffrey R. T. Kenyon 1l;m ~_d_:,'ii:'7 Goodwin, Procter & Hoar, LLP ."". . 

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Re: Five Arows Short-Term Investment Trust 

Dear Mr. Kenyon:
 

Your letter of September 22, 1997 requests assurance that the Division of Investment 

Management ("Division") would not recommend enforcement action to the Securities and 

Exchange Commission ("Commission") if Five Arows Short-Term Investment Trost (the 

"Trust") operates its Foreign Currency Funds (defined below) as "money market funds" for 

purposes of compliance with rule 2a-7 under the Investment Company Act of 1940 (the 

"1940 Act") and for certain other purposes as described below and in more detail in your 1 letter. 

1. Bac.kground
 

The Trust is an open-end management investment company organied as a Delaware 

business trust in series form. Rothschild International Asset Management Limited (the 

"Investment Manager") acts as the investment manager to the Trust. The Trust is authörized 

to issue shares representing interests in four separate series: the Pound Sterling Fund, the 

Deutsche Mark Fund, the Canadian Dollar Fund (collectively the "Foreign Currency Funds") 

and the U.S. Dollar Fund. Additional series of the Trust may be created as the Board of 

Trustees deems necessar or desirable. You state that you seek ths no-action position in 

connection with the thee existing Foreign Currency Funds, as well as any series that are 

2 similarly organed in the future. 


Capitalized terms used in this response and not otherwise defined have the meanng as set 

forth in rule 2a-7 as adopted on March 21, 1996. See Revisions to Rules Regulating Money 

Market Funds, Release No. IC-21837 (March 21, 1996) (61 FR 13956 (March 28, 1996)) 

("Release 21837"). All citations to rule 2a-7 in this response are to the provisions of the rule 

as adopted in Release 21837. 

.: 

You represent that the U.S. Dollar Fund currentlý operates as a "money market 
 2 fund" in 

accordance with the conditions of rule 2a-7. 
2 

The prospectus for the Foreign Currency Funds indicates that each is designed 

primarily for use by institutional investors to invest non-U.S. dollar-denominated short-term 

cash reserves. You represent that each Foreign Currency Fund is intended to operate as a 

"money market 
 fund" in a particular country's base currency (the "Designated Currency").3 

That is, each Foreign Currency Fund seeks to maintain a stable share price in it~ respective 

Designated Currency, similar to the stable $1.00 per share price that co~~en1pnal "money 

market funds" denominated in U.S. dollars seek to maintain.4 Each invests-un1y in 

securities denominated in its Designated Currency, seeks to maintain a constant net asset 

value expressed in its Designated Currency, and accepts, purchases and effects redemptions 

on1y in its Designated Currency. All required financial statements and other financial 

information with respect to the Foreign Currency Funds wil be expressed in their respective 

Designated Currency. 5 

The Foreign Currency Funds currently do not hold themselves out as "money market 

funds" in reliance on rule 2a-7, but operate in accordance with amortized cost procedures in 

reliance on the Commission's 1977 release permitting the use of the amortized cost method 

for certain debt instruments.6 These procedures restrict the Foreign Currency Funds to 

investments in high quality debt instruments with a remainig maturity of 60 days or less. 

You state that the Trustees and the Investment Manager believe that ths 60-day maturity 

restriction wil, over time, materially reduce the potential return that the Foreign Currency 

Funds can achieve. The Division staff understands that, upon receipt of this letter, the Board 

of Trustees intends to revise the Trust's procedures in order to take advantage of the greater 

flexibilty provided by rule 2a-7's amortized cost method of pricing, and also comply with 

rule 2a-7 in all other respects, subject to the conditions and limitations set fort in your 

The Designated Currency is the Pound Sterling in the case of the Pound Sterling Fund, the 

Deutsche Mark in the case of the Deutsche Mark Fund, and the Canadian Dollar in the case 

of the Canadian Dollar Fund. 

4	 Simlar to conventiona "money m~rket funds," each Foreign Currency Fund's prospectus and 

advertising materials wil disclose that there can be no assurance that it wil be able to 

maintain a stable net asset value per share expressed in its Designated Currency. 

5	 While the financial statements and other financial information may be expressed in the 

Designated Currency, the basis for such presentation wil comply with United States Generally 

Accepted Accounting Principles. You also represent that the Trust has obtained Private Letter 

Rulings from the Internal Revenue Service permitting each Foreign Currency Fund to use its 

Designated Currency as its "functional currency" for tax purposes, thereby eliminating. 

fluctuations in currency exchange rates as a variable in computing capital gains or losses in 

connection with investment activities. 

"­

6	 See Valuation of Debt Instruments By Money Market Funds and Certain Other Open-End 

Investment Companies, Release No. IC-9786 (May 31, 1977). 
3 

letter. 7 You also represent that the Foreign Currency Funds wil undertake to comply with 

the requirements of all other rules under the 1940 Act and all rules and forms under the 

Securities Act of 1933 (the "1933 Act") that are applicable to "money market funds" (e.g., 

Form N-1A and rule 482 under the 1993 Act). 

.. 

II. Analysis
 

A. Currency Denomination
 

Rule 2a-7(c)(3)(i) limits "money market funds" to investments on1y in United States 

Dollar-Denominated securities. Paragraph (a)(28) of rule 2a-7 defines "United States 

Dollar-Denominated" to mean that all principal and interest payments on securities are 

payable in U.S. dollars, and that interest and principal payments, and the timing of those 

payments, do not vary or float with foreign currency values, interest rates on foreign 

currency borrowings, or any other interest rate or index expressed in a currency other than 

the U.S. dollar. You request the Division's assurance that it would not recommend 

enforcement action if the Foreign Currency Funds hold themselves out and otherwise operate 

as "money market funds" under rule 2a-7, even though they invest exclusively in securities 

denominated in their Designated Currency, rather than United States Dollar-Denominated 

securities as required by rule 2a-7(c)(3)(i). 

Rule 2a-Ts requirement that all "money market fund" investments be United States 

Dollar-Denominated is designed to eliminate a fund's exposure to losses caused by 

fluctuations in currency exchange rates and thereby decrease the likelihood that a fund would 8 Given that rule 2a-7 contemplates investments, not be able to maintain a stable share price. 


sales and redemptions on1y in U.S. dollars, you suggest that the policy objectives underlying 

the rule could be achieved in the context of the Foreign Currency Funds on1y if all 

investments are denominated in the same currency in which all sales and redemptions of 

Foreign Currency Fund shares are effected. You assert that investments denominated in 

U.S. dollars or any curency other than a Foreign Currency Fund's Designated Currency 

would, in fact, impair a Foreign 
 Currency Fund's abilty to maintain a stable share price.9 

7 Procedures utilzing rue 2a-7's amortized cost method of pricing shares wil allow the
 

Foreign Currency Funds to invest in securities having remaining maturities of 397 days or 

less, but also wil require that each Foreign Currency Fund comply with the rule's other 

requirements. The Foreign Currency Funds also wil comply with the Commission's
 

advertising rules (e.g., rule 482 under the Securities Act of 1933) in the same manner as 

conventional "money market funds" denominated in U.S. dollars. 

See Release 21837, supra note 1, at nn. 164-65 and accompanying text. 

.: 

9 We understand that, consistent with the definition-of "United States Dollar-Denominated" 

/

I

(continued. . .) 

8 
4
 

B. Designated Foreign Government Securities
 

Section 2(a)(16) of the 1940 Act defines "Governent security" as a security issued 

or guaranteed as to principal or interest by the United States, or by a person controlled or 

supervised by and acting as an instrumentality of the U.S. Governent pursuant~to authority 

granted by Congress, or any certificate of deposit for any of the foregoïng~""The definition of 

"Governent Security" in paragraph (a)(13) of rule 2a-7 incorporates the definÍtion in section 

2(a)(16) of the 1940 Act. 

The Trust's investment policies define "Designated Foreign Governent Securities" as 

securities issued or guaranteed by the same sovereign governent which issues a Foreign 

Currency Fund's Designated Currency, or by a person controlled or supervised by and acting 

as an instrumentality of such governent pursuant to authority granted by the country's 

appropriate legislative or executive body, or any certificate of deposit for any of the 

foregoing. Subject to the limitations and conditions set fort in your letter, you request 

assurance that the Division wil not recommend enforcement action if the Foreign Currency 

Funds treat Designated Foreign Governent Securities in the same manner as U.S-. 

Governent Securities for purposes of: (i) determining whether the funds are adequately 

diversified under paragraph (c)(4) of rule 2a-7;lO (ii) calculating the maturities of adjustable 

rate Governent Securities under paragraph (d)(l) of the rule;l1 and (ii) applying the rule's 

defintions of "Asset Backed Security," "Refunded Security" and "Collateralized Fully. "12 

9(.. .	continued) 

securities, a Foreign Currency Fund seeking to maintain a stable share price and otherwise 

operate as a "money market fund" under rule 2a-7 would invest only in securities that, under 

all circumstances, paid principal and interest in its Designated Currency and for which the 

interest rate, the principal repayment amount, and the timng of payments related to those 

securities did not vary or float with: (i) the value of a currency other than its Designated 

Currency; (ii) the rate of interest payable on borrowings denominated in a currency other than 

its Designated Currency; or (ii) any other interest rate or index expressed in a currency other 

than its Designated Currency. 

10 You note that the Funds have elected to be classified as "non-diversified" funds and therefore 

are not subject to the diversification requirements of section 5(b)(1) of the 1940 Act. 

11 Paragraph (d)(I) generally provides that variable rate Governent Securities have maturities 

equal to the period remaining until the next readjustment of the interest rate, and that floating 

rate Government Securities have a remaining maturity equal to one day. '
 

12 Paragraph (a)(2) of rule 2a-7 excludes Governent Securities from the definition of "Asset 

Backed Security." Paragraph (a)(18) of the rule generally defines "Refunded Securities" as 

securities whose payment is funded. and secured by Governent Securities placed in an 

escrow account. The definition of "Collateralized-Fully" in paragraph (a)(4) of the rule is 

discussed in Section II.C. of this response. 
5 

Rule 2a-7 treats "money market fund" investments in U.S. Governent Securities 

differently than other investments because U. S. Governent Securities are presumed to 

present little, if any, credit risks.13 You note generally that sovereign governents playa 

central role as the dominant issuer of debt securities in markets denominated in their own 

currency and that their securities are a benchmark or reference point for interest 
 sates in 

those markets. You assert that absent political or economic turmoil, secllri_~"s issued by 

sovereign governents and denominated in their own currencies (i.e., domestic 

currency-denominated obligations) typically enjoy high credit ratings, are often the most 

liquid debt securities in their respective markets, and are the most common1y accepted 

collateral for institutional financial obligations such as repurchase agreements. You argue 

that such obligations are less risky than even the most creditworty private issuer because the 

obligations are ultimately backed by the governent's abilty to issue its own currency. 

You assert that investments in securities issued by some sovereign foreign 

governents, even when denominated in their own currencies, may present greater credit 

risks than investments in U.S. Governent securities. In order to miniize such credit risks 

and limit investments in 
 foreign governent securities to those with credit risks. ascomparable to U.S. Governent Securities as possible, you represent that the Foreign 

Currency Funds wil treat as Designated Foreign Governent Securities on1y those foreign 

governent securities that: (i) have a First Tier rating by the Requisite NRSROs with 

respectto the applicable governent's short-term domestic currency-denominted 

obligations;14 and (ii) are of sufficient credit quality in all other respects to qualify as First
 

Tier Securities under rule 2a-7. 15 You also acknowledge that the scope of activities carried 

out by intruentalities of foreign governents may be broader than those engaged in by
 

U.S. Governent agencies. In order to lessen this potential credit risk, you represent that 

governent securities other than direct obligations of the applicable foreign governent wil 

not be treated as Designated Foreign Governent Securities un1ess the Investment Manager 

13 For example, the diversification provisions of rule 2a-7 do not apply to Governent 

Securities, and all Governent Securities are treated as First Tier Securities for purposes of 

the rule's credit quality provisions. See paragraphs (a)(ll) and (c)(4) of rule 2a-7. 

14 You note that NRSROs typically do not rate U.S. or foreign governent securities on an 

issue-by-issue basis, but that ratings are typically assigned to broad categories of 

government-issued instruents, such as long- and short-term, domestic (i.e., local) and 

non-domestic (i.e., foreign) currency-denominated ratings categories. You represent that 

domestic currency-denominated obligations issued by the governents of the United
 

Kingdom, Germany and Canada currently possess First Tier ratings by the Requisite 

NRSROs. 

15 All Governent Securities are First Tier Securities under paragraph (a)(ll) of rule 2a-7. For 

purposes of this response and in accordance with the stipulation contained in your letter, 

however, Designated Foreign Governent Securities must qualify as First Tier 
 Securities 

under the same standards applicable to securities óf non-governmental issuers under paragraph 

(a)(ll). 
6
 

determines that their credit quality is substantially equivalent to direct obligations of that 

governent. 16
 

C. Repurchase Agreements .. 

Rule 2a-7 allows "money market funds" to "look through" a repurchase -agreement to 

the underlying collateral in determinig compliance with the rule's diversification limitations 

when the obligation of the counterpart is "Collateralized Fully." Paragraph (a)(4) of the 

rule provides that a repurchase agreement is "Collateralized Fully" if, among other thngs, it 

is collateralized by Governent Securities or other securities listed in the rule that permit the 

repurchase agreement to receive favorable treatment under applicable bankptcy laws. This 

provision is intended to ensure that securities collateralizing repurchase agreements can be 

liquidated promptly in the event of the bankptcy of the counterpart. You request that 

collateral comprised of Designated Foreign Governent Securities be accorded similar 

treatment as collateral comprised of U.S. Governent Securities for purposes of the rule's 

definition of "Collateralized Fully. " 

You represent that the Trust has been advised by its counsel that there is no general 

stay of creditors' rights applicable to repurchase agreements in bankptcy proceedings 

carried out under the applicable laws of Canada, Germany and the United Kingdom. You 

note that under these circumstances, the Trust generally would have an imediate right of 

access to collateral securing any repurchase agreements entered into by the Foreign Currency 

Funds. You represent that comparable assurances from counsel wil be obtained with respect 

to repurchase agreements entered into by any future series of the Trust that are organied 

similar to the Foreign Currency Funds, and which are collateralized with Designated Foreign 

Governent Securities. 

III. Conclusion
 

The Division would not recommend an enforcement action if the Foreign Currency 

Funds hold themselves out and otherwise operate as "money market funds" for purposes of 

compliance with rule 2a-7, except that the Foreign Currency Funds invest on1y in securities 

denominated in their respective Designated Currency and treat Designated Foreign 

Governent Securities in a manner similar to the rule's treatment of Governent Securities. 

The Division also would not recommend an enforcement action if the Foreign Currency 

Funds operate as "money market fuds" for purposes of all other rules under the 1940 Act 

and the rules and forms under the 1933 Act that are applicable to "money market funds." 

These conclusions are based upon the facts and representations in your letter of September 

22, 1997, and are furter subject to the conditions and limitations set fort therein. You 

.; 16 The Board of Trustees or other delegate authorized by paragraph (e) of rule 2a-7 also could 

make this determination. 
7 

should note that any different facts or representations might require different conclusions. 

Moreover, this response expresses our position on an enforcement action on1y and does not 

express any legal conclusions on the issues presented. 

* * * * , 

We note that you do not request, and we expressly do not interpret,--sëction 2(a)(16) 

of the 1940 Act to include Designated Foreign Governent Securities. The no-action 

position taen in this response relates solely to the application of rule 2a-7 to the Foreign 

Currency Funds. On1y securities issued or guaranteed by the U.S. Governent, or 

instrumentalities thereof, are "Governent securities" under section 2(a)(16) of the 1940 Act 

and related Commission rules.17 You also dò not request, and we would not agree, that 

securities issued by a foreign governent and denominated in U. S. dollars may be treated as 

"Governent securities" for 
 purposes of section 2(a)(16) of the 1940 Act and paragraph 

(a)(13) of rule 2a-7. Finally, we would not agree that the Foreign Currency Funds may be 

treated as "money market funds" for purposes of any restrictions on a fund's investments in 

other funds that maybe imposed by statute, Commission rules or orders, or by.a-fund's own 

investment policies. 

ìZß-


Kenneth J. Berman 

Associate Director 

.: 

17 See, e.g., J.P. Morgan Structured Obligations Corp. (July 27, 1994). 
GOODWIN, PROCTER & HOAR LLP 

COUNSELLORS AT LAW 

EXCHANGE PLACE: 

eOSTON. MASSCHUSETS 02109a28al 

GISOFFREV R¡T. KENYO'" -d 

T£L£PHON£ (6171 570-100 

(1517) 570-1187 

gkiinyanOgp/i.Qal1 

~ T£L£COPltR lel71 523'1231 

Invesen Compan Act . 

of 1940 - Rule 2a..7 

Septembe 22; 1997 

FEDERA ßXPRESS
 

Securties 'an Exchae Commsion 

450 Fif Stret
 

Washion. DC 20549
 

Attntion: Robert Plaz an Kennth J. Berm 

Ladies an Gentlemen;
 

'On beha of our clients. Five Arows Short-TcrInvestint Tru (the "Trut") 

and Rothchd Interntiona Asset MangemeII Lited (the "Investmen Mager'"), we 

herby request tht the Stff of the Division of Investment Manen of the Secties and 

Exchane Commsion conf tht the St woud not recmmend that th Commsion ta 

any enfrcent acton if non-U.S. dollar-denomite portlios of the Trt operate as 

((money market funds" subject to the litations descnbed in ths letter,l Capita;7-e te
 

used below an not otbe defi sha have th niang provide in Rule 2a-7 as 

proposed to be amended.2.
 

1 AJ fu spec beow~ ea suç portlio woud op in colian wit Rule 23-7


wide th Inesent Comp Act of 1940, as am~ (th · 194 Act")' exct th it woud be pett (3) to 

inves in sees demite in it ow Desiat Cuy (as defi beOW). an (b) to uea Deste
 

Foreig Go~ent Secitis (as defi beow) coably to the way U.S. goven sectis ar tr
 

by convention U.S. c1011ar-domin:iled money market fuds.
 

Su portolios alo would opetate as "m.oney maket fu" in compliance with th reents of al
 

other rues under the 
 1940 Act and al rues an for unde the Secties Act of 1933, as amended (the "1933
 

Act"), tht are aplieable to money maket fuds (e.g., Form N.IA an Rule 482 under the 193~ Act).
 

However, in the absence of fuer relief, su portflios woud not be "money maket fuds" for puoses of the
 

investment restrctions applicable to othr entties under such la.ws.
 

2 See "Teccal Revisions to the Rules an~Forr Regultin Money Market FUnds," mvestIent 

Compan Act Releae 2.383 (Decmber 10, 1996). The proposed revisions enerated in that release ar 

(contiued.. .) 
GOODWIN, PROCTER & HOAR LLP 

Mr. Robert Plaze 

Kenneth J. Berman, Esquire 

September 22, 1997
 

Page 2 

, 

Backgound 

The Trust is an open-end management investment company, organied as a Delaware 

business trst with multiple series (each a "Fund"). The Trust currently is authorized to issue 

shares representing interests in four separate Funds: the Pound Sterling Fund, the Deutsche 

Mark Fund, the Candian Dollar Fund (collectively the "Foreign Currency Funds"), and the 

U.S. Dollar Fund. The Trustees of the Trust have the power to create such additional Funds 

as they deem necessar or desirable from time to time. Our client seeks relief in connection 

with the thee Foreign Cuency Funds currently in existence, as well as Funds organed in 

the future. 

Each Fund is designed primarily for use as a mean of investing short-term cash 

reserves in its respective base currency (its "Designated Currency"). Each Fund seeks to 

maintain a constat net asset value expressed in its Designated Currency and effects purchases 

and redemptions on1y in such Designated Currency. The Trust has received a private . 
 letter 

ruling from the Intern Revenue Service which permts each Foreign Currency Fund to use its 

Designated Currency as its "fuctional curency" for ta purposes. This effectively 
 enables 

each Foreign Currency Fund to elimte fluctuations in exchange rates as a varable in 

computing whether its investment activities have given rise to any capital gain or losses. For 

puroses of report fied pursuant to the Securities Exchange Act of 1934, as amended, all
 

required finncial statements and other finncial inormation with respect to a Fund wil be 

denomited in that Fund's Designated Cuency. 

The U.S. Dollar Fund is a "money maket fund" with the meang of 
 Rule 2a-7 and 

operates in accordace with that Rule. The Foreign Currency Funds curently restrct their 

investments to high quality debt intrents with a remaing matuity of 60 days or less. 3 

Accrdingly, they utiiz the amortiz cost method of pricing in accordance with the position
 

articulated in the Commssion's 1977 release permtting the use of amortiz cost pricing for 

2(. . . continued) 

hereinfter referred to as the "Decmber 1996 Pr0p?sals." 

3 As noted in the Trut's registration statement, the Funds' investments are made though a
 

\ 

\ master-feeder strctue. However" we do not believe that ths strctue has any signficance for the issues / 

presented in ths letter. 
GOODWIN, PROCTER & HOAR LLP
 

Mr. Robert Plaze 

Kenneth J. Berman, Esquire 

September 22, 1997
 

Page 3
 

certin intrents. 4
 

The Trustees of the Trust have adopted amortizd cost procedures with respect to each 

of the Foreign Currency Funds (the "Procedures").5 By prohibiting the Foreign Currency 

Funds from acquiring any security having a remaing matuity of more than 60 days, the 

Procedures impose substatially stricter maturity guidelines than are generally applicable to 

funds relying upon Rule 2a-7. The Trust and the Investment Manger believe tht over time 

ths restriction wil materially reduce the potential return that can be achieved by the Foreign 

Currency Funds for their shareholders. Whe the Proceures impose stricter maturity 

guidelines th does Rule 2a-7, the Procedures are otherwise consistent with Rule 2a-7 except
 

that (a) each Foreign Currency Fund must limt its investments to securities denomited in its 

Designated Currency, rather than United States Dollar-Denomiated securities and (b) a special 

category of securities, "Designated Foreign Governent Securities" is treated much the same 

as Governent Securities are treated under Rule 2a-7. The Procedures define a "Designted 

Foreign Governent Security" as a security issued or guaranteed by the same sovereign 

governent which issues the 
 fund's Designated Currency, or by a person controlled or 

supervised by and acting as an intrentaity of such governent pursuant to authority
 

granted by the appropriate legislative or executive body in such country, or any certificate of 

deposit for any of the foregoing.6
 

Currency Denomination 

The requirement that securities eligible for purchase by money market funds be 

4 Investment Company Act Release 9786 (May 31, 1977). 

5 Except as noted in ths letter, these procures are intended to track Rule 2a-7 in the form 

curently mandated for conventiona money market fuds. The effect of the December 1996 Proposals are fuer
 

discussed below. Promptly after the issuace of the requested no-action letter, the Procedures would be amended 

to reflect the term and conditions thereof. 

6 Whe ths definition is based upon the defintion of Governent Securities in Section 2(a)(16) of 

the 1940 Act, the Trut and the Investment Adviser are aware that in some foreign countries the scope of activities 

caried out by governenta intrentaities and other governent-controlled entities is broader than in the
 

Unite States. In connection with receipt of the iequested relief, the Trut would be prepared to modify 
 ths 

defintion to provide that a security would be not be a "Designted Foreign Governent Security" uness the 

security were determed by the Investment Manger to have a creditwortiness substatially equivalent to that of 

a direct obligation of the applicable governent. 
GOODWIN, PROCTER & HOAR LLP
 

Mr. Robert Plaze 

Kenneth J. Berman, Esquire 

September 22, 1997
 

Page 4 

, 

denomited in U.S. Dollars predates Rule 2a-7.7 Over the years ths reqüfrement has 

received litte discussion in the Commssion's releases addressing Rule 2a-7. Nonetheless, it is 

clear that ths requirement exists in order to avoid the risk that fluctuations in exchange rates 

would undercut a fund's effort to maintain a stable net asset value.8 Prom a policy 

perspective, we believe that ths provision is best understood as a requirement that funds which 

seek to maintain a stable net asset value denomited in a paricular currency invest on1y in 

intrents denomited in that same currency, rather th an absolute requirement that such 

funds invest on1y in U.S. Dollar-Denomited Securities. We respectfully submit that where a 

fud seeks to maintain a stable net asset value in a currency other than the U.S. Dollar, it is 

appropriate that such fund avoid U.S. Dollar-Denomited Securities and limt its investments 

to intrents denomited in its base currency. 

Designated Foreign Government Securities 

It is clear under Section 2(a)(16) of the 1940 Act that "Government Securities" are 

defined solely by reference to the United States Governent. While we are not suggesting 

tht the Staff interpret Section 2(a)(16) of the 1940 Actto include Designated Foreign 

Governent Securities, we believe that there is a strong anlogy between Designated Foreign 

Governent Securities and Governent Securities which justifies a flexible approach to certin 

specific provisions of Rule 2a-7. 

The securities of a sovereign governent play a central role in the market for debt 

securities which are denomited in that governent's own currency. In general, the relevant 

governent is the domiant issuer of debt securities in the national market and its securities 

are the benchmk for all other debt securities issued in tht maket, e.g. as a reference point 

for interest rates. In general, securities of a sovereign governent are the most liquid debt 

securities in the applicable market, have a well dermed system for brokerage and safekeeping, 

and are the most common1y accepted form of collateral for intitutional finncial obligations 

such as repurchase agreements. 

Perhaps most importntly, the obligations of sovereign governents, when 

denomited in tht governent's own currency, are distinct from those of even the most 

7 See, e.g. Fidelity Daily Income Trut, Investment Company Act Release, 10989 

(Deèember 19, 1979) (exemptive order permttin~ the use of amortized cost pricing).
 

8 See Investment Company Act Release 21837, Revisions to Rules Regulating Money Market 

Funds (March 21, 1996), footnotes 164-65 and accompanying text. 
c I 

GOODWIN, PROCTER & HOAR LLP 

Mr. Robert Plaze 

Kenneth J. Berman, Esquire 

September 22, 1997
 

Page 5
 

, 

creditworty private issuer. Such obligations are ultimately backed by the--gõvernent's
 

abilty to issue the underlying currency; if necessary, a sovereign governent can pay its 

domestic-currency denomited debt by issuing more of its own currency.9 

Although the domestic-currency denomited obligations of many foreign governents 

enjoy high 
 credit ratings,1O some foreign governents are not considered to be nearly as 

creditworty as the United States, e.g. because they are subject to a high degree of political or 

economic turbulence. Accordingly, as a condition to the requested relief, the Trust is prepared 

to stipulate that the applicable governent, as to its domestic currency-denomited short-term 

obligations, wil have a First Tier rating by the Requisite NRSROs and that in all other 

respects all Designated Foreign Governent Securities purchased by a Foreign Curr-ency Fund 

wil be of suffcient credit quality to qualify as First Tier Securities. 

In light of the foregoing considerations, we believe that Designated Foreign 

Governent Securities should be treated comparably to Governent Securities for purposes of 

9 

. Ths logic applies only to domestic-curency denomied obligations. Where a governenta
 

obligation is denomited in the curency of another country, the obligation would be analogous to that of a 

private issuer. 

10 NRSROs tyically do not rate U.S. and foreign governent securities on an issue-by-issue basis. 

Rather ratings tyicaly are provided to broad categories of intrents, Le. long- and short- term, domestic
 

curency-denomite and non-domestic curency-denomite. ,The Stadad & Poor's and Mooy's Investors 

Servce ratigs of obligations issued by the Candian, Germ and the United Kigdom governents and 

denomited in the applicable local curency are as follows: 

Stadad & Poor's Mooy's 

Count Long Term Short Term Long Term Short Term* 

Canda AA A-l+ Aal No rating 

Germany AAA A-l+ Aaa No rating 

United Kigdom AA A-l+ Aaa No rating 

." 

* Although Mooy's doe not rate domestic currency-denomirite short-tenn obligations of these countres, the foreign currencydenomite short-tenn obligations of these countres each have a P-l rati. In general, a sovereign governent's domestic 

currency-denomite obligations are deemed to be at least as credit worty as its foreign currency-denomited obligations. 
GOODWIN, PROCTER & HOAR LLP 

Mr. Robert Plaze 

Kenneth J. Berman, Esquire 

September 22, 1997
 

Page 6
 

, 

determg whether a fund is adequately diversified under Rule 2a-7(c)(4)(i)*lnd calculating 

the maturity of certin adjustable rate securities .12 Assumig adoption of the December 1996 

Proposals, we also believe tht Designated Foreign Governent Securities should be treated 

comparably to Governent Securities in defining the term "Asset Backed Security," and 

"Refunded Security.,,13 

While we believe that Designated Foreign Governent Securities should be treated 

comparably to Governent Securities in defining the term "Collateralized Fully," we 

recognie that ths issue raises an additional consideration. For some time the Commssion has 

focused upon the concern that a fund might experience delays as a result of the general stay of 

creditors rights that arises in many circumstances under U.S. bankptcy laws. The-­

Commssion's 1993 proposed amendment to Rule 2a-7 would have limted the types of 

acceptable collateral to certin specified types of securities. Under the December 1996 

Proposals, collateral would be acceptable on1y if, upon insolvency of the counter part, the
 

repurchase agreement would qualify under a provision of applicable inolvency law providing 

an exclusion from any general stay of creditors rights.14 At your request, the Trust has sought 

the advice of local counsel concerng the treatment of repurchase agreements under the 

banptcy law of Canda, England, and Germany. The Trust has been advised that in a 

bankptcy carried out under the law of each of those countries, there is no general stay of 

creditors rights applicable to repurchase agreements, regardless of the type of collateral with 

which they are secured. Accordingly, under those circumstances the Trust would generally 

have an imediate right of access to the collateral securing the repurchase agreements. In 

connection with any futue Foreign Currency Fund, the Trust intends to seek comparable 

assurances from local counel. 

On behalf of the Trust, we thank you very much for your time and that of your 

colleagues in connection with ths matter. If you should have any furter questions regarding
 

11 The Foreign Curency Funds are not subject to the diversification requirements of Section 

5(b)(1) of the 1940 Act because they have elected to be classified as "non-diversified." 

12 See Rule 2a-7(d)(1). 

13 Under the December 1996 Proposals, all Governent Securities would automatically be First 

Tier Securities. Consistent with the stipulation in the preceding paragraph, the Trust proposes that Designated 

Foreign Governent Securities would be First Tier Securities only if they met objective standads comparable to 

those applicable to securities of non-governentalissuers. under sub-section (a)(ll) of Rule 2a-7. 

14 See Rule 2a-7(a)(4)(defintion of "Collateralized Fully") 
. .
 ," , 

GOODWIN, PROCTER & HOAR LLP 

Mr. Robert Plaze 

Kenneth J. Berman, Esquire 

September 22, 1997
 

Page 7
 

, 

the foregoing, please do not hesitate to contact Jackson B.R. Galloway oft1S'~offce or me. 

Sincerely yours, 

GRTK/cbc 

Enclosure 

.::