Proposed Code of Conduct Duplicates Existing Fund Regulations

Washington, DC, July 30, 2003 - Investment companies and their directors already are subject to extensive regulations overseeing professional ethics and conflicts of interest that preclude a Nasdaq proposal to require listed issuers to adopt codes of conduct, the Institute stated in a recent comment letter.

Background
Nasdaq filed proposed rule changes with the SEC that would require each Nasdaq-listed issuer to adopt a code of conduct applicable to its directors, officers, and employees. Specifically, Nasdaq has proposed to amend Rule 4350 of the Securities Exchange Act to require listed companies to adopt a code of conduct that complies with the definition of "code of ethics" in Section 406(c) of the Sarbanes-Oxley Act of 2002 and related rules adopted by the SEC. In addition, the code would be required to be made publicly available and to provide for an enforcement mechanism.

ICI Position
In its letter to Nasdaq, the Institute notes that investment companies are required by the Investment Company Act of 1940 and the Sarbanes-Oxley Act of 2002 to adopt a written code of ethics, and are prohibited from certain transactions involving fund affiliates.

The Institute recommends that Nasdaq determine that investment companies that are subject to the requirements of Form N-CSR and Form N-SAR, Section 17 of the Investment Company Act, and certain other requirements satisfy any new Nasdaq requirement regarding codes of conduct. The Institute points out that such a determination would be consistent with Nasdaq's intentions with respect to the proposal and would harmonize Nasdaq's code of conduct requirements with analogous requirements proposed by the New York Stock Exchange.

The Institute also requests that if Nasdaq determines to subject investment companies to the proposed code of conduct requirements, that it clarify how frequently investment companies must disclose any waivers granted. In particular, the letter requests that Nasdaq clarify that an investment company may disclose waivers to its Nasdaq code of conduct on Form N-SAR or Form N-CSR, or on its website (rather than in quarterly reports or Form 8-K, as suggested). The Institute points out that the requested clarification takes into account the differences between the reporting obligations of operating companies and investment companies and assures consistency between Nasdaq's required code of conduct and analogous SEC requirements.

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