Date: 1/22/97 5:19 PM To: Jonathan G. Katz Secretary Securities and Exchange Commission rule-comments@sec.gov Re: File No. S7-29-96 From: ehubbard@capmac.com Background Respondent is Capital Markets Assurance Corporation (*CapMAC*), which is a triple-A rated financial guarantee insurance company. As a key part of CapMAC*s business of helping customers to access funding by issuing asset backed securities, CapMAC provides 100 percent credit enhancement for, and administrative and referral services to, two asset backed commercial paper vehicles, or special purpose enterprises (*SPEs*). These two SPEs are known as Triple-A One Funding Corporation and Triple-A One Plus Funding Corporation. At the end of December 31, 1996, total commercial paper outstanding for these two SPEs amounted to $3.0 billion. CapMAC provides bond insurance for the benefit of both SPEs. This bond insurance guarantees the assets of the SPEs in an amount equal to the total face amount of commercial paper outstanding. Based primarily upon the ratings of bank liquidity providers, the commercial paper issued by Triple-A One Funding Corporation is rated A1 / P1 while the commercial paper issued by Triple-A One Plus Funding Corporation is rated A1+ / P1. Comment The underlying assets of certain SPEs which issue commercial paper are supported by a guarantee provider. The asset guarantee typically runs to the Issuing and Paying Agent, for the benefit of commercial paper holders. In some circumstances, the SPE may benefit from overcollateralization and therefore the guarantee only covers a portion of the total assets. Under all circumstances, however, the total amount of guarantees provided is at least equal to the total face amount of the SPE*s outstanding commercial paper. Where the assets of a SPE are guaranteed by a guarantee provider in an amount at least equal to total principal and interest on the SPE*s securities, and under the circumstance where the sponsor of the SPE does not disclose the identity of *ten percent obligors,* CapMAC believes that money funds should be exempt from the requirement to look through the SPE to identify *ten percent obligors* for purposes of satisfying issuer diversification standards. Instead, CapMAC believes money funds should be able to attribute their credit exposure for purposes of diversification requirements to the guarantee provider. Such an exemption would be consistent with the provision for *Credit Substitution* (Paragraph (c)(4)(I) of rule 2a-7, as proposed to be amended), which would permit money funds to exclude from issuer diversification standards those securities subject to guarantees from a non-controlled person. In the example described above, although the securities themselves are not subject to a direct guarantee, the asset guarantee underlying the securities performs a similar function. This interpretation would be consistent with the philosophy underpinning the Credit Substitution provisions, specifically, that it is appropriate for an investor to look to the credit of a guaranty provider as the key component of their credit analysis of a proposed investment. An additional benefit from such an approach would be to reduce the burden imposed upon money funds with respect to record keeping and reporting. While CapMAC believes that such interpretation is consistent with the intent of the proposed amendments to Rule 2a-7, respondent requests that the amendments to Rule 2a-7 explicitly exempt money funds from the requirement to *look through* the SPE in order to identify ten percent obligors if the SPE does not disclose the identity of 10 percent obligors and if it can be shown that the money fund benefits from a guarantee of the underlying assets equal to the total amount of the SPE*s outstanding commercial paper. Respectfully submitted, Edward B. Hubbard Vice President and Treasurer Capital Markets Assurance Corporation 885 Third Avenue, 14th Floor New York, NY 10022 (212) 891-8823