This memorandum summarizes the amendments to Rule 17j-1 under the 1940 Act that were adopted in late August.
A. Summary of Rule 17j-1
Rule 17j-1 addresses personal trading activities of investment company personnel. In particular, Rule 17j-1 prohibits fraudulent,
deceptive or manipulative acts by persons affiliated with a registered investment company, its investment adviser or principal
underwriter in connection with their personal securities transactions involving securities held or to be acquired by the fund.
The rule requires funds, their investment advisers and principal underwriters to adopt a code of ethics reasonably designed
to prevent such fraudulent activities. The rule also requires access persons to report certain personal transactions at least
quarterly.
B. Summary of SEC Amendments to Rule 17j-1
In general, the amendments will increase the oversight role of an investment company's board of directors with respect to
codes of ethics, including requiring investment company boards to approve the codes of ethics of investment advisers and principal
underwriters. The amendments will add to investment company personnel's reporting obligations, and require prior approval
of investments in initial public offerings ("IPOs") and certain limited offerings by certain investment company personnel
(including portfolio managers). Related amendments to disclosure forms (e.g. Form N-1A) will require investment companies
to provide information about their policies concerning personal investment activities in their registration statements and
to file copies of the codes of ethics of the investment company, its investment advisers and principal underwriters as exhibits
to registration statements.
The amendments are designed to enhance the board of directors' oversight of the policies governing personal transactions in
securities by investment company personnel. They also are designed to help compliance personnel and the SEC's examinations
staff in monitoring potential conflicts of interest and detecting potentially abusive activities, and to make information
about personal investment policies available to the public.
C. Compliance Dates
The rule amendments will become effective October 29, 1999. To permit the individuals and entities that are subject to Rule
17j-1 sufficient time to comply with the new provisions and to avoid conflicts with plans to address Y2K issues, the SEC is
providing transition time for the new requirements. The compliance dates are as follows:
1. March 1, 2000
No later than March 1, 2000, Rule 17j-1 organizations (e.g., funds and their investment advisers and principal underwriters)
and their personnel must meet the following requirements;
(i) Each Rule 17j-1 organization must have identified access persons and notified them of their reporting obligations;
(ii) Each Rule 17j-1 organization must have adopted procedures for management or compliance personnel to review transaction
and holdings reports; and
(iii) Each Rule 17j-1 organization must have established a record of access persons who are required to make transaction and
holdings reports, and of persons who are responsible for reviewing those reports.
2. April 10, 2000
Each quarterly transaction report filed for the calendar quarter ending March 31, 2000 (due April 10, 2000), and for subsequent
quarters must include the additional detail required under amended Rule 17j-1(d)(1)(ii).
3. September 1, 2000
No later than September 1, 2000:
(i) Each fund's board of directors must have approved codes of ethics of the fund, its investment advisers and principal underwriters,
revised as necessary in response to the rule amendments;
(ii) Each Rule 17j-1 organization must have provided the fund's board of directors with the first of its annual issues and
certification reports; and
(iii) Each access person must have provided the first of his or her annual holdings reports to his or her Rule 17j-1 organization.
4. Other Compliance Dates
(i) After March 1, 2000, investment personnel may not directly or indirectly acquire any beneficial interest in securities
in an IPO or in a private placement without prior approval from the fund or the fund's investment adviser, and the fund and
adviser must retain records of the approval and reasons for granting the approval;
(ii) Each person who becomes an access person on or after March 1, 2000 must file an initial holdings report within 10 days
after becoming an access person; and
(iii)In the next post-effective amendment filed by a fund after March 1, 2000, the fund must file copies of codes of ethics
of the Rule 17j-1 organizations as an exhibit to the registration statement, and disclose certain information about those
codes.
If you have any questions or would like additional information regarding the above matters, please do not hesitate to contact
any of the undersigned.
