Standard & Poor's Ratings Services announced late last week, "[I]t has lowered its principal stability fund rating on the Lehman Brothers Liquidity Funds PLC: Lehman Sterling Liquidity Fund to 'Am' from 'AAAm'." S&P explains, "This rating action follows notification to Standard & Poor's on Feb. 2, 2009, of the termination of the fund and that a cash payment representing 97% of the fund was distributed to shareholders on Jan. 29, 2009. The fund's board of directors had also elected to terminate the fund as of Jan. 29, 2009, on the recommendation of Lehman Brothers Asset Management (Europe) Ltd., which acts as investment manager to the fund. The residual 3% (equivalent to L700,000) is expected to be paid to shareholders soon after May 29, 2009, as a structured investment vehicle (SIV) issued by Dorada Corp., still held in the name of the fund, reaches maturity."

S&P adds, "The Lehman Sterling Liquidity Fund up until its termination date had maintained a stable principal value and remained within the criteria guidelines set down for a 'AAAm' principal stability fund rating. However, following actions taken last week, we have today lowered the rating on the fund and placed the rating on CreditWatch with developing implications." No investors are expected to see any losses, and it appears that Lehman is exiting the "offshore" institutional money fund business entirely. S&P also withdrew its AAA rating from the Dublin-registered American Beacon Global USD Liquidity Fund, as the company is closing the fund.

In other news, the Investment Company Institute and the International Investment Funds Association published "Worldwide Mutual Fund Assets and Flows for the Third Quarter of 2008. ICI writes, "Mutual fund assets worldwide decreased 12.1 percent to $21.66 trillion at the end of the third quarter of 2008. Money market funds experienced net inflows of $28 billion in the third quarter, compared with outflows of $70 billion in the second quarter of 2008. Year-to-date money market funds have had $444 billion of net inflows."

On the money fund totals, ICI explains, "Both the Americas and Europe experienced inflows into money market funds, with a combined net flow of $44 billion in the third quarter compared to a combined outflow of $83 billion in the second quarter. Asia/Pacific money market funds registered net outflows of $18 billion in the third quarter after reporting net inflows of $12 billion in the second quarter."

Finally, for more on "offshore" money market funds, see Monday's Financial Times' story "Investors voice concern over transparency" and the International Capital Market Association's (ICMA) "Draft Report on Money Market Funds".

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