After a brief pause (which may resume if the government does indeed shut down some nonessential operations in coming days), the SEC has resumed posting (and accepting after the deadline) comment letters on its Money Market Fund Reform Proposal. Today, we quote from Mary Beth Rhoden Albaneze, Secretary and Chief Legal Officer, Russell Investment Company. The letter says, "We urge the SEC to consider the effect of the Proposing Release on unregistered money market funds that currently conform to the requirements of Rule 12d1-1. These unregistered money market funds serve as valuable cash management vehicles for many registered investment companies, including the Investment Companies. Through Rule 12d1-1, the SEC has provided registered investment companies with the ability to invest in unregistered money market funds that comply with Rule 2a-7. However, some aspects of the proposed amendments to Rule 2a-7 are ill-suited for these unregistered money market funds. Accordingly, we ask that the SEC specify in the final rule that certain provisions of the amended rule are not applicable to unregistered money market funds that serve as cash management vehicles for registered investment companies. Section 12(d)(1)(A) of the 1940 Act limits the amount one investment company may invest in shares of other investment companies. In 2006, the SEC adopted several rules under Section 12(d)(1) to broaden the ability of an investment company to invest in shares of other investment companies, codifying a number of exemptive orders that had previously been issued by the SEC. One such rule -- Rule 12d1-1 -- allows investment companies to invest in shares of money market funds in excess of the limits of Section 12(d)(1). Rule 12d1-1(b)(2) provides that investment companies may invest in an unregistered money market fund if the acquiring investment company reasonably believes that the unregistered money market fund, among other things, operates in compliance with Rule 2a-7. Unregistered money market funds currently are a valuable tool for an acquiring investment company, because such unregistered money market funds are designed to accommodate the significant daily inflows and outflows of cash of the acquiring investment company. Because these funds are privately offered to institutional investors, they frequently can be operated at a lower cost than registered investment companies, providing an attractive investment for a registered investment company's uninvested cash. In order for a registered investment company to continue to invest in unregistered money market funds, the unregistered money market fund would have to comply with any amendments to Rule 2a-7. The Proposing Release does not appear to anticipate the circumstances of these unregistered money market funds, for which compliance with several aspects of the Proposing Release would be difficult, if not impossible."

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