1 See Memorandum to Closed-End Fund Committee No. 39-95, International Committee No. 20-95, SEC Rules Committee No. 88-95, Unit Investment Trust Committee No. 60-95, Rule 17f-5 Ad Hoc
Subcommittee, dated August 1, 1995.
2 See Memorandum to Accounting/Treasurers Committee No. 31-96, Memorandum to Closed-End Fund Committee
No. 21-96, International Committee No. 25-96, SEC Rules Committee No. 79-96, Unit Investment Trust Committee No.
30-96, Rule 17f-5 Ad Hoc Subcommittee, dated July 26, 1996.
September 18, 1996
TO: ACCOUNTING/TREASURERS COMMITTEE No. 37-96
CLOSED-END FUND COMMITTEE No. 31-96
INTERNATIONAL COMMITTEE No. 32-96
SEC RULES COMMITTEE No. 102-96
UNIT INVESTMENT TRUST COMMITTEE No. 40-96
RULE 17f-5 AD HOC SUBCOMMITTEE
RE: COALITION SUPPLEMENTAL COMMENT LETTER ON PROPOSED
AMENDMENTS TO RULE 17f-5
______________________________________________________________________________
As we previously informed you, the Securities and Exchange Commission proposed
amendments to Rule 17f-5 under the Investment Company Act of 1940, the rule that governs
the custody of investment company assets outside of the United States.1 The Commission has
not yet taken any formal action on that proposal.
Attached is a supplemental comment letter filed by a coalition of banks that act as global
custodians of investment company assets held outside of the United States ("Coalition"). The
Coalitions letter was filed in response to a letter recently filed with the Commission by the
Institute.2 The Coalitions letter reiterates their view that the Commission only should permit
investment company directors to delegate the country-wide custodial risk determination to a
funds investment adviser, not to a custodian bank. They argue that this determination is really
part of the decision to invest in a given country and, therefore, the two should not be
bifurcated. In addition, the Coalition asserts that depending on the funds risk tolerance,
investment objectives, and assessment of the markets potential for appreciation, different
funds will reach different decisions regarding whether it is appropriate to accept the risks
associated with a particular foreign countrys infrastructure. Since the outcome of this
balancing of risk and reward will vary from fund to fund, a bank custodian should not be
expected to make a uniform decision for its fund customers that fund assets can be reasonably
protected in a particular foreign jurisdiction, according to the Coalition.
Dorothy M. Donohue
Assistant Counsel
Attachment