October 17, 1990
TO: MONEY MARKET MEMBERS - ONE PER COMPLEX NO. 14-90
RE: SEC INSPECTIONS OF MONEY MARKET FUNDS
__________________________________________________________
This is to inform you that at a recent conference, Gene
Gohlke, Acting Director of the SEC's Division of Investment
Management, announced that the Division would be inspecting all
money market funds between October 1990 and September 1991. The
staff will be inspecting primarily for compliance with Rule 2a-7,
particularly focusing on the procedures used to determine the
creditworthiness of portfolio securities and compliance with the
quality standards under the rule. It is our understanding that
if a deficiency is found, the staff will send a letter directly
to the board of directors in light of their responsibilities
under Rule 2a-7 to ensure that proper procedures concerning
creditworthiness are in place.
In addition, the staff will be inspecting for "window
dressing" activities. The staff is concerned that money market
funds are replacing their lower rated portfolio securities with
higher rated securities before a public reporting period ends.
The staff indicated that this could misrepresent the quality of a
fund's portfolio and could be the basis for an enforcement
action.
Amy B. Rosenblum
Assistant General Counsel