SEC Proposed Amendment to Rule 10f-3


]]> Home | Message Board Home Search Arbitration Investors Brokers Finance Law Compliance Archives

SEC Proposed Amendment to Rule 10f-3

Amendment to include government securities

By John M. Baker, Esq.

The SEC recently proposed amendments that would both broaden and narrow the exemptions contained in Rule 10f-3 under the 1940 Act. Release No. IC-24775 (Nov. 29, 2000). Rule 10f-3 allows registered investment companies to purchase securities during an offering in which an affiliate is an underwriter, subject to the rule’s conditions.

Rule 10f-3 does not currently exempt offerings of government securities, because their offerings generally have not involved affiliated underwriters to a significant degree. In 1998, however, at least two govern-sponsored enterprises began to offer their securities through syndicated underwritings (apparently Fannie Mae and Freddie Mac, which issue “government securities” for these purposes).

The SEC is proposing to amend Rule 10f-3 to permit affiliated funds to purchase government securities during the existence of an underwriting or selling syndicate for those securities. Rule 10f-3 limits purchases by an affiliated fund, together with any other fund advised by the fund’s adviser, to 25% of an offering. The purpose of the percentage limit is to provide an indication that a significant portion of an offering is being purchased by persons acting independently of the adviser (i.e., the securities are not being “dumped” and their price is based on market forces).

The SEC proposes to include purchases by non-fund advisory clients in the 25% limit. In other words, the 25% limit would apply to purchases by the affiliated fund, aggregated with purchases by any other fund advised by the fund’s adviser and any other account over which the adviser has discretionary authority.

The proposing release is available online at

Copyright 2000, John M. Baker, Esq., Stradley, Ronon, Stevens & Young, LLP, 1220 19th Street, N.W., Suite 700, Washington, DC 20036 – (202) 822-9611- Fax (202) 822-0140 This article was originally posted to the FundLaw List, To subscribe to FundLaw, send a blank e-mail to

Nothing herein is intended as legal or financial advice. The law is different in different jurisdictions, and the facts of a particular matter can change the application of the law. Please consult an attorney or your financial advisor before acting upon the information contained in this article.  

Return to The Securities Law Home Page 

]]> ]]>