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News November 22, 2004 Issue

No-Action Letter Addresses Closed-End Fund Boards’ Oversight

In a November 10 no-action letter to the Investment Company Institute, the staff of the SECís Division of Investment Management excused closed-end fund boards of directors from approving and annually reviewing compliance policies and procedures of the fundís principal underwriters.

The ICI had pointed out that closed-end fund shares are sold through a syndicate, each of whose members are deemed a principal underwriter of the fund. The group argued that the application of the compliance program rule to the syndicate members "raises serious practical issues without providing corresponding benefits." Among other things, the ICI noted that syndicate members do not have an ongoing relationship with the fund after selling its shares.

In response, the staff said it would not recommend enforcement action under Rule 38a-1 if a closed-end fund "does not comply with the provisions of the rule concerning principal underwriters with respect to any principal underwriter of the fund that does not undertake regularly to serve or act as a principal underwriter for the fund."