Institute Responds to SEC Guidance on Riskless Principal Transactions

Washington, DC, January 8, 2002 - The Institute recently sent a letter to the Securities and Exchange Commission requesting that it reexamine the treatment of riskless principal transactions under Section 17 of the Investment Company Act of 1940 in light of the recent guidance it issued regarding the application of the safe harbor in Section 28(e) of the Securities Exchange Act to these transactions.

Section 17(a) of the Investment Company Act prohibits a fund from engaging in principal transactions, including riskless principal transactions, with an affiliate. The letter notes, however, that for all practical purposes, riskless principal transactions more closely resemble agency transactions than traditional principal transactions and, thus, do not present the possibilities for abuse that Section 17(a) was designed to address.