SEC ISSUES INTERPRETATION REQUESTED REGARDING COMPULSORY DEPOSITORIES UNDER RULE 17F-5

* See Memorandum to Closed-End Fund Committee No. 50-97, SEC Rules Committee No. 116-97, dated November 24, 1997. [9695] February 20, 1998 TO: SEC RULES COMMITTEE No. 13-98 RULE 17f-5 WORKING GROUP RE: SEC ISSUES INTERPRETATION REQUESTED REGARDING COMPULSORY DEPOSITORIES UNDER RULE 17f-5 ______________________________________________________________________________ As we previously informed you, the Institute submitted a request to the Securities and Exchange CommissionGs staff asking them to confirm that amended Rule 17f-5 permits the board of directors of any investment company to delegate to foreign custody managers, including custodian banks, the responsibilities set forth in Rule 17f-5(c) with respect to any compulsory securities depository (copy attached).* Attached is the staff response confirming that such delegation is permissible under the rule. The response points out that Rule 17f-5, by its terms, includes compulsory depositories as eligible foreign custodians and that the rule permits a fundGs board to delegate to its foreign custody manager the selection of any type of eligible foreign custodian (subject to the ruleGs conditions). The staffGs letter also acknowledges that the rule amendments could have treated the custodial risks associated with the use of a compulsory depository as prevailing country risks because the use of such depository may be necessary to invest in a particular country. The letter then states that “[t]his approach, however, would have eliminated an important protection of rule 17f-5--that the board or its delegate determine whether the particular custodian will provide reasonable care for fund assets. In addition, it would likely have involved the Commission and the Division in the determination of which foreign depositories are ‘compulsoryG under the rule.” (Notes omitted.) Finally, the letter states that the staff looks forward to working with the Institute and others in resolving the remaining issues regarding compulsory depositories. Dorothy M. Donohue Associate Counsel Attachments