We learned from a recent SEC filing that Nothern Trust's Northern Funds will launch a series of variable NAV money funds, including Investors Variable NAV Money Market Fund, Investors Variable NAV AMT-Free Municipal Money Market Fund, Investors Variable NAV U.S. Government Money Market Fund and Investors Variable NAV Treasury Money Market Fund. When the first of these new funds goes live (no date is set yet), it will be the second "floating" NAV money fund, following the launch in 2011 of Deutsche Bank's DWS Variable NAV Money Fund.
Northern's Form N-1A registration says, "The Fund is a money market fund that seeks to maximize current income to the extent consistent with the preservation of capital and maintenance of liquidity by investing exclusively in high-quality money market instruments. The fund has a variable net asset value ("NAV"). Unlike a traditional money market fund, the fund will not use the amortized cost method of valuation and does not seek to maintain a stable share price of $1.00. As a result, the fund's share price, which is its NAV, will vary and reflect the effects of unrealized appreciation and depreciation and realized losses and gains."
The filing adds, "The Fund is managed in accordance with Rule 2a-7 ("Rule 2a-7") under the Investment Company Act of 1940, as amended (the "1940 Act"). Rule 2a-7 imposes strict requirements on the investment quality, maturity, and diversification of the Fund's investments. Accordingly, the Fund's investments must have a remaining maturity of no more than 397 days, and must be high quality. In addition, the Fund must maintain a dollar-weighted average maturity of 60 days or less, and a dollar-weighted average life of 120 days or less, without regard to interest rate resets. The Fund also maintains certain minimum standards regarding daily and weekly liquid assets, and limitations on the purchase of illiquid holdings, as required by Rule 2a-7." The new funds will have an expense ratio of 0.35% (0.50% with a 0.15% waiver).
Northern's filing doesn't give an initial NAV value (like $10 or $100), but comments, "Each Fund's portfolio securities are valued at fair value.... Fixed-income securities, however, may be valued on the basis of evaluated prices provided by independent pricing services when such prices are believed to reflect the fair value of such securities. Such prices may be determined by taking into account other similar securities prices, yields, maturities, call features, ratings, strength of issuer, insurance guarantees, institutional size trading in similar groups of securities and developments related to specific securities."
Finally, Deutsche Bank, which has had trouble attracting assets and interest to its Variable NAV MF product (it is $10.00 a share and just $18 million), first announced its intentions in September 2009 (see Crane Data's Sept. 3, 2009, News, "Deutsche Proposes Floating NAV MMFs to Join Stable in SEC Comment"). DWS said in a previous SEC comment letter, "In our view the question to ask is whether the Commission should consider and enable mutual fund companies to offer both Stable NAV and Floating NAV money funds. We believe the Commission should do so, and, therefore, propose that Rule 2a-7 be amended to permit registrants to operate a money market fund under either or both structures. Investors and cash markets would benefit, in our judgment, if Rule 2a-7 were amended to permit both Stable NAV funds, which would operate pursuant to the amendments proposed by the Commission, and Floating NAV funds, which would operate pursuant to the existing terms of Rule 2a-7 other than the provisions contemplating a money fund maintaining a stable $1 net asset value."
