1 See Memorandum to Institutional Funds Committee No. 8-96, Money Market Funds Ad Hoc Committee No. 7-96, dated May 28, 1996; Memorandum to Tax Committee No. 19-96, Pension
Committee No. 21-96, dated June 3, 1996.
July 8, 1996
TO: INSTITUTIONAL FUNDS COMMITTEE No. 12-96
MONEY MARKET FUNDS AD HOC COMMITTEE No. 9-96
PENSION COMMITTEE No. 31-96
TAX COMMITTEE No. 24-96
RE: INSTITUTE COMMENT LETTER ON INFLATION-PROTECTION SECURITIES
______________________________________________________________________________
As we previously informed you, the Treasury Department has requested comments on
the design details, terms and conditions and other features of a proposed new type of Treasury
security: "inflation-protection" securities.1 The Institute recently submitted to the attached
comment letter to the Treasury Department.
The Institutes letter supports the Treasury Departments initiative and agrees with the
Treasury that inflation-protection securities could provide savings on interest costs to the
United States government and broaden the types of debt instruments available to investors in
the financial markets. The letter indicates that, if structured correctly, inflation-protection
securities should prove to be attractive both to individual and institutional investors and in the
pension and retirement markets.
The Institutes specific comments concern how the Treasury Department might best
ensure that inflation-protection securities gain the broadest acceptance with the investing
public. The Institute recommends that the securities be issued with a broad range of maturities,
including short-term (1 to 5 years), intermediate-term (5 to 10 years) and long-term (more than
10 years) maturities. Although the Institute does not express an opinion of the "preferred"
structure for the securities, the letter recommends that the securities be structured to meet the
expectations of investors, including investment companies. Accordingly, the letter
recommends that, in structuring the securities, the Treasury Department consider certain issues
that are of particular concern to investment companies, including issues related to the
securities volatility and cash flow and their tax and accounting treatment. Finally, the letter
recommends that, as part of the proposal, the Treasury Department develop a schedule in
which to seek periodically public comment from market participants on the issuance and
structure of inflation-protection securities.
Alexander C. Gavis
Assistant Counsel
Attachment