October 31, 1994
TO: SEC RULES COMMITTEE NO. 115-94
RE: MUTUAL FUND INTERNAL COMPLIANCE RULE
__________________________________________________________
Attached for your immediate review and comment is a revised
draft of the Institute's proposed mutual fund internal compliance
rule. As discussed at the Committee meeting on October 25th, the
proposed rule has been revised substantially to grant the board
of directors explicit authority to delegate the selection of
compliance officials to the fund's adviser, principal
underwriter, or administrator.
Among other things, our revisions also would:
a) require that a copy of the compliance policies and
procedures and board reports be preserved for five years rather
than permanently;
b) eliminate the requirement that each fund consider
periodically whether to obtain independent testing of the
policies and procedures (this is now located in a note to the
rule);
c) amend paragraph (b)(2)(ii) to provide that the report to
the board need only discuss compliance matters requiring
significant remedial action; and
d) eliminate the definition of "reasonably designed," in
light of a comment received that the proposed definition
established an unnecessarily high standard. In lieu of a
definition, our position paper would set forth our views on the
appropriate interpretation of "reasonably designed" for purposes
of the rule.
Please contact the undersigned by COB November 4, 1994 with
any comments you may have on the revised proposed rule. I can be
reached at 202/326-5834 or by fax at 202/326-5827.
Angela C. Goelzer
Associate Counsel
cc: Mutual Fund Internal Compliance Working Group