May 9, 1990
TO: SEC RULES MEMBERS NO. 36-90
RE: SEC LETTER CONCERNING MONEY MARKET FUNDS
________________________________________________________
Attached is a copy of the letter from the Division of
Investment Management to the investment company industry
concerning the credit analysis of money market fund portfolio
securities.
In the letter, Kathryn McGrath reiterates the duty of the
board of directors under Rule 2a-7 to undergo a two-part
analysis of the money market instruments that may be purchased
by the fund. First, the board must determine that the security
presents a minimal credit risk and, second, that the security
has received a rating of "high quality" or, if the security is
unrated, that it is of comparable quality. With respect to the
board's determination that the security presents a minimal
credit risks, the letter states that a board can only make this
determination based upon an analysis of the issuer's capacity
to repay its short-term debt and includes examples of such an
analysis. The letter also addresses which securities should be
deemed unrated for purposes of the rule and discusses the
additional determination that a board must make with respect to
unrated securities.
Amy B. Rosenblum
Assistant General Counsel
Attachment