Memo #
8888
INSTITUTE DRAFT LETTER ON INVESTMENT COMPANY NAME RULE AND PROPOSED DURATION CALCULATION
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May 14, 1997
TO: CLOSED-END INVESTMENT COMPANY COMMITTEE No. 20-97
UNIT INVESTMENT TRUST COMMITTEE No. 29-97
DURATION TASK FORCE
RE: INSTITUTE DRAFT LETTER ON INVESTMENT COMPANY NAME RULE AND
PROPOSED DURATION CALCULATION
______________________________________________________________________________
Attached for your review is a draft of the Institutes comment letter on proposed Rule
35d-1 under the Investment Company Act, addressing investment company names, and a draft
proposed methodology for calculating portfolio duration for certain bond funds. The letter
reflects a consensus of the attendees at a meeting held on April 9 to discuss the proposal. In the
draft letter, we have highlighted several issues on which we are specifically seeking members
input.
The draft letter expresses general support for the Commissions proposal to require
investment companies with names that suggest they focus on a particular type of investment to
invest at least 80% of their net assets in the type of investment suggested by their names. The
Institutes support, however, is conditioned upon the proposal being revised in the following
respects: (1) to eliminate the requirement that investment companies adopt the investment
requirement as a fundamental policy; (2) to provide an exception from the requirement to allow
for the orderly investment of incoming cash and to meet anticipated redemption requests; and
(3) to base the test only on an investment companys net assets, rather than on net assets plus
certain borrowings as proposed.
The draft letter also expresses support for requiring investment companies that hold
themselves out as having a stated maturity policy to have a commensurate duration policy.
Attached as an appendix to the letter are draft recommendations for calculating duration for
this purpose. The appendix reflects the preliminary recommendations of the Institutes
Duration Task Force that were submitted to the SEC staff last December.
Comments on proposed Rule 35d-1 are due to the SEC by June 9, 1997. Please provide
me with your comments on the letter by May 22, 1997 and on the proposed duration
methodology by May 27, 1997. My direct number is 202/326-5824, my e-mail address is
amy@ici.org and the fax number is 202/326-5827.
Amy B.R. Lancellotta
Associate Counsel
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