WASHINGTON — The Securities and Exchange Commission is conducting nationwide, “limited scope examinations” of certain mutual funds that invest in Puerto Rico securities, according to a document obtained by The Bond Buyer and knowledgeable sources.

On-site interviews are being conducted Thursday at an investment management firm with exposure to Puerto Rico through its mutual funds, according to a letter from the SEC’s San Francisco Regional Office. The letter was obtained by The Bond Buyer with the recipient’s name redacted.

The exams, which are being carried out by the SEC’s Office of Compliance, Inspections and Examinations and its regional offices, are intended to make sure the commission is up to speed on how much of Puerto Rico’s $70 billion of outstanding debt is held by funds in the U.S. and what those funds are telling their shareholders about the risks involved.

The U.S. territory has about 3.7 million residents, but suffers from a poverty rate of 45%, according to the Census Bureau. Its outstanding debt translates into $18,919 per person. Most of the U.S. territory’s debt is barely investment grade and investors such as Blackrock, which has cut its holdings of the island’s bonds, are concerned those ratings may slip. Moody’s Investors Service and Standard & Poor’s this month affirmed their Baa3 and BBB-minus ratings on Puerto Rico general obligation bonds. Fitch Ratings rates them BBB-minus.

The letter from the SEC’s San Francisco Regional Office sent on Oct. 3 requested at least 10 sets of documents and information, including reports and handouts provided to the fund’s board of trustees related to Puerto Rico bonds, minutes of trustee board meetings, and communications to shareholders having to do with Puerto Rico.

The letter also asks for copies of the most recent stress test, the VAR, or Value-At-Risk analysis performed for the fund, and policies and procedures used to value portfolio positions.

The letter is signed by Cindy Cooper, a staff accountant for SEC investment management examinations. Cooper also provided the fund with OCIE’s examination information brochure. Cooper and an OCIE spokesman declined to comment.

The nationwide examinations come after Massachusetts Secretary of the Commonwealth William Galvin sent inquiry letters on Oct. 9 to Fidelity Investments, Oppenheimer Funds, and UBS Financial Services. Galvin’s securities division is looking at whether Massachusetts investors were made adequately aware of the investments’ risks and whether they were kept up to date about Puerto Rico’s changing financial situation. The division will also look at whether the bonds have been properly priced.

Securities law experts said the SEC probes appear to be aimed both at understanding the potential effects on the market if the heavily-indebted commonwealth suffers a further downgrade or even a default. They also seem to be checking to make sure that funds investing in those bonds are adequately disclosing the risks involved in Puerto Rico debt.

“I’m not surprised,” one securities lawyer said of the examination. The SEC would be looking at risk disclosures, marketing materials, and other communications related to the fund, the lawyer said.

“It sounds like they’re being proactive,” one lawyer who did not want to be identified said of the SEC exams. He said the SEC is trying to “get more of an understanding as to the whole Puerto Rico situation and what’s being disclosed to investors.”

Puerto Rico bonds are popular investments with many mutual funds because they are tax-exempt in all states and other U.S. jurisdictions. Many investors benefit from triple tax-exemption at the federal, state and local levels.

Some sources suggested the SEC could even be checking on whether funds’ names reflect their debt holdings. But that may not be a problem. Mutual funds advertised as being tax-exempt for certain states must by law invest at least 80% of their holdings in debt tax-exempt in that state. They use bonds issued by U.S. territories to help fulfill that requirement.

Some funds are very heavily invested in Puerto Rico bonds, according to data provided by Morningstar, Inc. that is current as of Sept. 30. Franklin Templeton’s “Franklin Double Tax-Free Income A” fund is 61% Puerto Rico debt, while Oppenheimer Funds’ “Oppenheimer Rochester VA Municipal A,” a Virginia-specific fund, is 33% Puerto Rico debt. Oppenheimer also runs several more state specific funds for North Carolina, Maryland, Arizona, and Massachusetts which each hold more than 20% of their assets as Puerto Rico bonds.

The Franklin Double Tax-Free Income A fund is down 15.23% since June and down 13.74% year-to-date through Oct. 23. The Oppenheimer Rochester VA Municipal A fund is down 14.60% since June and 13.05% year-to-date.

Franklin Templeton and Oppenheimer spokeswomen declined to comment.

The Franklin Templeton and Oppenheimer websites for these funds do not contain specific disclosures regarding Puerto Rico. But the funds’ prospectus’ include statements of risk about the U.S. territory.

The Franklin Templeton fund prospectus includes a rundown of the commonwealth’s debt struggles, including recent downgrades and the potential for liquidity shortages on the island to affect the fund’s performance.

The Oppenheimer prospectus is less specific, warning that political and economic conditions in U.S. territories could “affect the market values and marketability” of the fund.

Puerto Rico yields have spiked since a front page article on the commonwealth’s finances in Barron’s on Aug. 26. From Aug. 23 to Oct. 11, the two-year Puerto Rico general obligation bond yield jumped to 6.75% from 3.18%, the 10-year GO yield jumped to 8.60% from 6.16%, and the 30-year yield climbed to 8.58% from 7.21%, according to Municipal Market Data. Since Puerto Rico government officials held a conference call on Oct. 15 reassuring investors the territory has the ability and willingness to pay its debt obligations, yields have stabilized and even rallied on longer maturing bonds. On Oct. 23, the two-year Puerto Rico GO yielded 6.75%, the 10-year yield stabilized at 8.63%, and the 30-year yield fell to 7.85%.