[12925]
December 12, 2000
TO: SEC RULES COMMITTEE No. 132-00
RE: SEC PROPOSES AMENDMENTS TO RULE 10f-3 UNDER THE INVESTMENT
COMPANY ACT
The Securities and Exchange Commission has proposed amendments to Rule 10f-3
under the Investment Company Act of 1940, the rule that permits a registered investment
company (“fund”) that has certain affiliations with an underwriting participant to purchase
securities during an offering.1 The proposed amendments would (1) expand the exemption
provided by the rule to permit a fund to purchase government securities in a syndicated
offering, and (2) modify the rule’s quantitative limit on purchases to cover purchases by a fund
as well as any other account advised by the fund’s investment adviser. The Proposing Release
is attached, and it is summarized below.
The comment period ends February 15, 2001. The Institute has scheduled a conference
call for Tuesday, January 9, 2001 at 2:00 p.m., Eastern time, to discuss this proposal. If you
would like to participate on the call please contact my assistant, Stephanie Holly, by phone at
(202) 326-5923, by fax at (202) 326-5827, or by email at sholly@ici.org. If you are unable to
participate but would like to provide comments for the Institute’s consideration, please call me
at (202) 326-5923, or email me at bsimmons@ici.org by Monday, January 8, 2001.
The Proposing Release identifies several factors the Commission considered in
proposing to include government securities as a permitted investment under Rule 10f-3.2 It
notes that under the proposal, the other restrictions of the rule, such as the limitations on the
price and quantity of securities purchased, would apply to the purchase of government
securities by a fund. The Commission seeks comment on whether any of these limitations
should not apply to purchases of government securities. The Commission also seeks comment
on whether the rule should include limitations on the purchase of government securities that do
1 Exemption for the Acquisition of Securities During the Existence of an Underwriting or Selling Syndicate, SEC Rel. No.
IC-24775 (Nov. 29, 2000); 65 Fed. Reg. 76189 (dated Dec. 6, 2000)(“Proposing Release”).
2 The Proposing Release notes that: (1) government securities are high-quality investments, and therefore unlikely to
be dumped into a fund; (2) the circumstances under which government agencies offer their securities to the public
appear to be an effective substitute for Securities Act registration; (3) government agencies generally must obtain
approval from the Department of Treasury concerning the timing, price and terms of the securities offering;
(4) information about government securities typically is available to the public through prospectuses or similar
offering documents; and (5) government securities trade actively in the secondary market.
2not apply to other securities purchased under the rule, such as requiring that government
securities receive a certain credit rating from a Nationally Recognized Statistical Rating
Organization, as is required for municipal securities.
The Commission also proposes to amend Rule 10f-3’s quantitative limit on purchases to
require that if a fund purchases securities in reliance on the rule, its purchases, aggregated with
the purchases by any other fund advised by the fund’s adviser, and any other account over
which the adviser has discretionary authority or otherwise exercises control, could not exceed
25 percent of the offering. The Proposing Release notes that this change is intended to address a
possible “loophole” in the rule that could permit an adviser to circumvent the percentage limit
and compromise the effectiveness of the rule by not aggregating the purchases of its other “non-
fund” clients. The Commission seeks comment on whether in light of this proposal the 25
percent limit should be increased.
Barry E. Simmons
Associate Counsel
Attachment (in .pdf format)