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Affiliated Transactions

Because conflicts may arise in arrangements or transactions between a fund and its “affiliates” (very broadly, the fund’s investment adviser, other entities or people or businesses with whom it has close relationships, and other funds managed by the same adviser), some transactions with affiliates are prohibited. In other cases, the transactions are permitted only in accordance with SEC rules and orders, which impose conditions designed to protect investors and require fund directors to adopt and review procedures designed to ensure compliance with those conditions.

For example, the fund’s board of directors, including a majority of the independent directors, must adopt procedures before a fund may engage in:

  • transactions in which the fund purchases a security from an underwriting syndicate of which the fund’s adviser (or its affiliate) is a member;
  • purchases and sales of securities between the fund and other funds in the same complex; and
  • purchases and sales of securities for which a broker affiliated with the fund receives commissions.

In each of these examples, the board must approve changes to the procedures when necessary, and receive, no less frequently than quarterly, a written representation provided by the fund’s chief compliance officer that the transactions complied with the procedures.

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