JULY 14, 1992 MEETING ON REGULATIONS ON THE INVESTMENT OF TAX-EXEMPT MUNICIPAL BOND PROCEEDS

June 1, 1992 TO: TAX MEMBERS NO. 37-92 INSTITUTIONAL FUNDS COMMITTEE NO. 8-92 MONEY MARKET MEMBERS - ONE PER COMPLEX NO. 7-92 RE: JULY 14, 1992 MEETING ON REGULATIONS ON THE INVESTMENT OF TAX-EXEMPT MUNICIPAL BOND PROCEEDS __________________________________________________________ As you know, the Treasury Department has recently issued final regulations relating, in part, to the ability of tax-exempt bond issuers to invest the proceeds of a bond issue in invest- ments yielding more than the issuer is paying on the tax-exempt bond. (See Institute Memorandum to Tax Members No. 32-92, Institutional Funds Committee No. 7-92 and Money Market Members - One Per Complex No. 5-92, dated May 15, 1992.) The regulations are generally favorable to open-end regulated investment companies (i.e., mutual funds). Under the regulations, a bond issuer does not have to gross up its income from a publicly traded regulated investment company ("RIC") (as defined in Internal Revenue Code section 67(c)(2)(B)) by the amount of the RIC’s expenses. In addition, mutual funds are excluded from the definition of commingled funds and, thus, not subject to the restrictions imposed on such funds. A RIC will not be considered publicly offered "if it is marketed or structured for a principal purpose of attracting investors of proceeds of issues of tax-exempt bonds." The regulations will expire on June 30, 1993. There will be a meeting at the Institute at 10:00 a.m. on Tuesday, July 14, 1992, to discuss the regulations and, in particular, what actions the Institute might take to clarify the "principal purpose" standard described above. Lunch will be served after the meeting. If you will be attending, please call Ms. Berlaunder Barnes at (202) 955-3518 by July 7, 1992. David J. Mangefrida Jr. Assistant Counsel - Tax