When you use yield to minimum processing for funds that use net investment income (NII) distributions along with waterfall waivers for expenses, the system can perform processing that recognizes the waterfall waivers. This allows those waterfall waiver funds to process their distribution adjustments in a similar manner to how they process their expense waivers.
About the Minimum Yield and NII Distributions
You can define a Minimum Yield (tag 4992) value for a share class that indicates the minimum yield that a daily distributing master fund entity must obtain. The system requires a minimum yield to process expense reimbursements. If the NII process calculates a yield below this threshold, it recalculates the distribution amount to equal this threshold.
When a fund’s share class has a calculated daily yield that is below the user defined minimum, the yield to minimum processing automatically adjusts the distributable income and the associated daily yield by posting an expense reimbursement. The system calculates the target distribution by multiplying the fund’s elected NII distribution share balance of the share class by the minimum yield. Then it calculates a class level expense reimbursement and posts it to the ledger. Ordinarily, it posts the expense reimbursement entry to the Fund Dividend Expense Reimbursement ledger account. However, waterfall waiver funds must post this adjustment using the waterfall waiver process and fund and class hierarchy rules specifically for waterfall waiver yield to minimum distribution adjustments.
Use Yield to Minimum Processing with Waterfall Waiver Funds
For the waterfall waiver yield to minimum processing method, the Yield and Yield to Minimum calculations apply. The same daily yield/minimum yield check occurs as well as the calculation of target distribution to determine if a distribution adjustment is needed. Once an adjustment is needed, the waterfall waiver processing method begins. First, the system virtually waives the class level expenses on the class hierarchy rule to determine if a total fund waiver is needed. If a total fund waiver is not needed, the class level expenses actually waive according to the class hierarchy rule until the system posts the adjustment amount for the share classes.
If a total fund waiver is needed, the system identifies the driving class or share class with the largest need in BPS impact to back into a waiver amount for the total fund. The fund level expenses are waived according to the fund hierarchy rule and allocated down to the share classes. Finally for classes with a remaining adjustment amount, the system actually waivers the class level expenses according to the class hierarchy rule until the adjustment amount is achieved for all share classes.You must perform additional setup to use yield to minimum processing for waterfall waiver funds.
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