State Street Seeking to Capitalize on One-of-a-Kind Fund Rating

State Street Bank and Trust Co. is seeking to make marketing hay out of an unusual rating that one of its bond funds received from Standard & Poor's.

S&P rated the fund, dubbed the Seven Seas Yield Plus Fund, AA-f for credit quality, meaning it is unlikely to suffer from defaults, and AAA for market risk, meaning it has a low sensitivity to market swings.

It is the first proprietary U.S. bank bond fund to receive a rating indicating such low market risk.

According to Peter Rizzo, an analyst at New York-based S&P, the rating is unusual because bond funds with AA credit quality normally carry more market risk.

That fact is not lost on the unit of State Street Boston Corp., which manages the $1.35-billion Seven Seas funds.

"We see it as extremely positive for the continued growth of our fund families," said William M. Thomas, director of national sales for the funds.

Though only subscribers to S&P's Credit Wire service are notified of the rating, Mr. Thomas said State Street plans to use it as a marketing tool to sell the fund to institutional investors, internal clients, corporations, and foundations.

The Yield Plus fund is managed to retain a stable net asset value. It invests in corporate bonds with a 90-day maximum maturity permitted for money market funds registered with the Securities and Exchange Commission.

"The fund is used by institutional investors looking for a rate of return higher than institutional money market funds provide, but with a limited asset value risk," Mr. Thomas said.

But whether investors will look to S&P for its ratings on mutual funds remains to be seen, said Mark Naber, a managing director at Optima Group, Fairfield, Conn.

"All other things being equal, it might give State Street an edge," he said, particularly with conservative investors, such as bank trust customers. "But whether or not this rating will be an effective marketing tool, the jury is still out."

Standard & Poor's currently rates about 100 bond and money market funds managed by banks. The agency began rating mutual funds for market risk in 1994 and for credit risk in 1984.

The rating agency also offers portfolio monitoring services that advise investors how closely a portfolio manager adheres to a fund's investing guidelines.

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