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INVESTMENT COMPANY INSTITUTE SUPPORTS PROPOSED INTERVAL FUNDS, BUT OPPOSES CREATION OF DAILY EXTENDED PAYMENT FUNDS

 INVESTMENT COMPANY INSTITUTE SUPPORTS PROPOSED INTERVAL FUNDS,
 BUT OPPOSES CREATION OF DAILY EXTENDED PAYMENT FUNDS
 WASHINGTON, Nov. 5 /PRNewswire/ -- Proposed federal securities rules that would permit the creation of closed-end and open-end funds which could repurchase and redeem their shares at predetermined periodic intervals have drawn the support of the Investment Company Institute. At the same time, the Institute, which is the national association of the mutual fund industry, has expressed opposition to a related proposal which it said could confuse investors.
 The Institute expressed its views in a letter to the Securities and Exchange Commission from Craig S. Tyle, the Institute's vice president for securities, concerning the SEC's proposed new rules and amendments to rules under the Investment Company Act of 1940.
 "The Institute supports the proposals to permit Closed-End and Open-End Interval Funds, although we believe that several modifications are necessary," Tyle wrote. "With respect to the proposed Daily Extended Payment Funds, we urge that the proposal be withdrawn." He stated that the introduction of this new fund, which closely resembles traditional mutual funds in that both would accept redemptions on a daily basis, could cause investor confusion, since the funds would not be subject to the requirement of payment in one week that regular mutual funds are subject to. In contrast, the interval funds, for which the Institute supports allowing an extended payment feature, could repurchase or redeem only on a periodic basis. Therefore, there would be less potential for investors to confuse these funds with traditional mutual funds, he said.
 Tyle noted that the Institute had previously urged the Commission to take action to relax the dichotomy between open-end mutual funds, which redeem daily, and closed-end funds, which do not redeem their shares but typically trade on an exchange. "If the current dichotomy between open-end and closed-end funds is relaxed, investors will have the opportunity to invest in products that contain some of the attributes of both structures," the letter said.
 Tyle pointed out that investors in traditional open-end funds have the assurance that they can redeem their shares on a daily basis and receive proceeds equal to the net asset value of their shares within seven days. Consequently, open-end funds are restricted with respect to their investments in illiquid securities and are forced, as a practical matter, to hold cash that might otherwise be invested.
 In contrast, Tyle pointed out that, since closed-end funds do not offer redeemable shares, they may invest in less liquid securities and do not need to maintain cash to cover potential redemptions. However, investors in closed-end funds cannot liquidate their holdings at net asset value and must look to a secondary market for liquidity where prices could be either above or below net asset value.
 The Institute's comment letter also proposed that the new open- end interval funds be prohibited from calling themselves mutual funds. In addition, the Institute recommended that the new interval funds be required to inform potential investors of their limited redemption and repurchase rights.
 The Institute's membership includes 3,733 open-end investment companies (mutual funds), 287 closed-end investment companies and 12 sponsors of unit investment trusts. Its mutual fund members have assets of about $1.45 trillion, accounting for about 95 percent of total industry assets, and have about 36 million shareholders.
 -0- 11/5/92
 /NOTE: The complete text of Tyle's letter is available on request from the Institute's Public Information Department./
 /CONTACT: Erick Kanter, 202-955-3530, or John Collins, 202-955-3535, both of the Investment Company Institute/ CO: Investment Company Institute ST: District of Columbia IN: FIN SU:


TW -- DC024 -- 7893 11/05/92 16:12 EST
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Publication:PR Newswire
Date:Nov 5, 1992
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