Fact Sheet on Adoption of Amendments to Rule 17j-1:
Personal Investment Activities of
Investment Company Personnel
The Commission has adopted amendments to rule 17j-1 under the Investment Company Act of 1940. Rule 17j-1 addresses conflicts of interest between registered investment companies ("funds") and their personnel (such as fund portfolio managers) that can arise when fund personnel buy and sell securities for their own accounts. The amendments tighten the rule in ways designed to better prevent fund insiders from misusing their positions with mutual funds.
Increase Oversight by the Board of Directors
Funds, their investment advisers and principal underwriters currently must adopt codes of ethics to prevent fund personnel from engaging in fraud. The amendments to rule 17j-1 will require a fund's board of directors to more actively oversee the personal investment activities of fund personnel:
|1.||The fund's board of directors must approve the fund's code of ethics, as well as the codes of any investment adviser or principal underwriter to the fund.|
|2.||The board must review annual reports from the fund (and any investment adviser or principal underwriter to the fund) regarding problems that have arisen under the codes during the past year.|
Improve Reporting Requirements
Fund personnel who obtain information about the fund's investments (referred to as "access persons") currently must report their securities transactions quarterly to their employer. The amendments to rule 17j-1 fill in gaps in the current reporting system, and are designed to make it easier for funds and Commission inspections staff to spot conflicts of interest and potential fraud relating to personal investment activities:
|1.||Securities holdings reports. Fund personnel must provide an initial report of their securities holdings to their employers when they become access persons and annual reports after that.|
|2.||Pre-clearance of certain purchases. Portfolio managers (and others who participate in the fund's investment decisions) must obtain advance approval for any investment in an initial public offering ("IPO") or private placement.|
The Commission also has adopted amendments to disclosure forms to improve the information investors receive about fund policies on personal investment activities. Funds must disclose in their registration statements (available on the SEC's website):
|1.||The fund's policy on employees' personal investment activities, as well as the policies of any investment adviser or principal underwriter to the fund.|
|2.||A copy of the fund's code of ethics, and the codes of any investment adviser or principal underwriter to the fund.|
Webmaster Note: The registration statements mentioned above are filed with the SEC via the EDGAR system. An on-line version of the EDGAR database is available on the SEC website, but remember that these changes will not take effect immediately. See the discussion of the effective dates and phase-in schedule (below).
The amendments will become effective October 29, 1999, but mandatory compliance with the amendments will be phased in, beginning March 1, 2000.