TreatiseTreatise

Mutual Funds and Exchange Traded Funds Regulation (3rd Edition)

 by Clifford E. Kirsch
 
 Copyright: 2011-2015
 Last Updated: November 2015

 Product Details >> 

Product Details

  • ISBN Number: 9781402416910
  • Page Count: 1980
  • Number of Volumes: 2
  •  
  • The purchase of PLI titles may include Basic Upkeep Service, whereby supplements, replacement pages and new editions may be shipped to you immediately upon publication for a 30-day examination. This service is cancelable at any time.

Updated to reflect the Dodd-Frank Act, the many FINRA amended rules, and the SEC 2010 Amendments, the new third edition of Mutual Funds and Exchange Traded Funds Regulation offers definitive legal and compliance information, helping you to:

  • Satisfy prospectus disclosure and delivery standards
  • Draft airtight advisory, distribution, custodian, and other contracts
  • Structure sound compensation agreements
  • Exploit statutory safe harbors and other exemptions
  • Use SEC-approved methods of valuating mutual fund shares
  • Ensure marketing materials meet legal standards
  • Avoid conflicts of interest, insider trading, and legal traps created by electronic technologies
  • Satisfy inspectors’ information requests while safeguarding sensitive materials

This two-volume treatise is also filled with practical suggestions on how to approach complex issues in such areas as dealing with valuation matters • distribution through intermediaries • structuring a 12b-1 plan • conducting a compliance review • and guarding against conflicts of interest. The most recent updates add coverage on the 2010 Amendments affecting liquidity  requirements, proposed amendments on Rule 482 to provide more information on “target date funds” and under what conditions redemptions and payments may be suspended by money market funds.

Updated at least once a year, Mutual Funds and Exchange Traded Funds Regulation is an essential compliance tool for securities attorneys, mutual fund practitioners, compliance personnel, and risk officers in fund complexes, and valuable reading for business professionals and investors.

  Table of Contents
  Preface
Chapter 1: Introduction to Mutual Funds
  • § 1:1 : A Brief History of the Mutual Fund Industry1-2
  • § 1:2 : The Players1-11
    • § 1:2.1 : Mutual Funds1-11
    • § 1:2.2 : Investment Adviser1-12
    • § 1:2.3 : Board of Directors1-13
    • § 1:2.4 : Administrator1-13
    • § 1:2.5 : Underwriter or Distributor1-13
    • § 1:2.6 : Custodian1-14
    • § 1:2.7 : Transfer Agent1-14
    • § 1:2.8 : Independent Auditors1-14
    • § 1:2.9 : Legal Counsel1-14
    • § 1:2.10 : Chief Compliance Officer1-15
    • § 1:2.11 : Shareholders1-15
  • § 1:3 : Organizational Structure1-15
    • § 1:3.1 : The Mutual Fund Complex1-15
    • § 1:3.2 : The Adviser and the Board1-16
    • § 1:3.3 : The Fund’s Distribution Structure1-17
    • § 1:3.4 : Portfolio Management Structure1-18
    • § 1:3.5 : Marketing Structures1-19
  • § 1:4 : Regulatory Framework1-21
    • § 1:4.1 : Overview of the Investment Company Act1-21
    • § 1:4.2 : Restrictions on Advisory Services1-22
      • [A] : Prospectus Disclosure1-22
      • [B] : Controls Over the Advisory Contract1-23
      • [C] : Corporate Structure1-23
      • [D] : Private Right of Action1-24
      • [E] : Affiliated Transactions1-24
      • [F] : Restrictions on Investments1-25
    • § 1:4.3 : Restrictions on Capital Structure1-26
      • [A] : Prohibition on Debt Issuance1-26
      • [B] : Issuance of Redeemable Shares1-26
      • [C] : Pricing of Shares1-26
    • § 1:4.4 : Restrictions on Sales of Fund Shares1-27
      • [A] : Limits on Sales Load1-27
      • [B] : Financing Distribution Through Fund Assets1-27
      • [C] : Advertising Regulations1-27
    • § 1:4.5 : Administration of the Investment Company Act: The Role of the SEC1-29
      • [A] : SEC Inspections1-29
      • [B] : Enforcement1-30
  • § 1:5 : Application of the Investment Advisers Act1-30
Chapter 1A: A History and Overview of Mutual Fund Regulation
  • § 1A:1 : Early History1A-2
    • § 1A:1.1 : Investment Companies1A-3
      • [A] : What Is an Investment Company?1A-4
      • [B] : What Is Not an Investment Company?1A-5
      • [C] : Classification of Investment Companies1A-6
      • [D] : Diversification Classification of Management Companies1A-8
      • [E] : Tax Requirements1A-8
    • § 1A:1.2 : Investment Advisers1A-9
  • § 1A:2 : Industry Growth1A-10
    • § 1A:2.1 : The 1970 Amendments1A-11
    • § 1A:2.2 : The 1980 Investment Company Act Amendments: Business Development Companies1A-12
    • § 1A:2.3 : Other Service Providers to Funds1A-12
    • § 1A:2.4 : The Commodity Exchange Act and the CFTC1A-13
    • § 1A:2.5 : Mutual Funds As Retirement Vehicles1A-13
      • [A] : The Tax Code1A-13
      • [B] : ERISA1A-14
      • [C] : Investment Choices1A-14
      • [D] : Target Date Funds: A New Retirement Product1A-16
    • § 1A:2.6 : Exchange Traded Funds1A-17
    • § 1A:2.7 : The National Securities Markets Improvement Act of 19961A-18
  • § 1A:3 : Related Developments1A-19
    • § 1A:3.1 : Money Laundering1A-19
    • § 1A:3.2 : Accounting and Securities Fraud1A-20
    • § 1A:3.3 : Market Timing and Late Trading; Compliance Programs and COOs1A-20
  • § 1A:4 : The Credit Crisis of 2007–20091A-21
    • § 1A:4.1 : Money Market Fund Issues1A-22
    • § 1A:4.2 : Market and Valuation Problems1A-23
    • § 1A:4.3 : The Madoff Fraud and Other Ponzi Schemes1A-23
    • § 1A:4.4 : The SEC’s Regulatory Response1A-24
    • § 1A:4.5 : The SEC’s Enforcement Response1A-25
  • § 1A:5 : Congressional and Administrative Response to Credit Crisis: The Dodd-Frank Act1A-26
    • § 1A:5.1 : Dodd-Frank Amendments to the Investment Advisers Act1A-27
    • § 1A:5.2 : Additional Impact of the Dodd-Frank Act1A-28
  • § 1A:6 : Conclusion1A-31
Chapter 1B: Forming, Organizing and Operating a Mutual Fund: Legal and Practical Considerations; and Appendix 1B-A
  • § 1B:1 : Overview1B-4
  • § 1B:2 : The Core of Mutual Fund Regulation: Investment Company Act1B-6
    • § 1B:2.1 : Evolution and Raison d’Etre1B-6
    • § 1B:2.2 : History Subsequent to Enactment1B-7
    • § 1B:2.3 : Scope1B-9
  • § 1B:3 : Mutual Funds vs. Other Types of Registered Investment Companies1B-9
    • § 1B:3.1 : Subcategories of Registered Investment Companies1B-9
    • § 1B:3.2 : Open-End Funds vs. Closed-End Funds1B-10
      • [A] : Mutual funds Have Greater Management and Administrative Requirements and Expenses Than Closed-End Funds1B-10
      • [B] : Mutual Funds are More Restricted With Respect to Borrowing and Leverage Than Closed-End Funds1B-11
      • [C] : Mutual Fund Shareholders May Purchase and Redeem Shares Daily; Closed-End Fund Shareholders May Not1B-11
    • § 1B:3.3 : Other Registered Investment Companies1B-12
      • [A] : Unit Investment Trusts1B-12
      • [B] : Exchange-Traded Funds1B-12
      • [C] : Registered Funds of Funds1B-13
      • [D] : Target Date Funds1B-13
      • [E] : Managed Futures Mutual Funds1B-13
  • § 1B:4 : Mutual Fund Structure1B-14
    • § 1B:4.1 : A Registered Fund Must Be Organized in the United States1B-14
    • § 1B:4.2 : State of Organization1B-14
      • [A] : Corporations1B-14
      • [B] : Business and Statutory Trusts1B-14
    • § 1B:4.3 : Families of Funds, Series Funds and Master-Feeder Funds1B-15
      • [A] : Family of Funds1B-15
      • [B] : Series Funds1B-15
      • [C] : Master-Feeder Structures1B-16
    • § 1B:4.4 : Fund Names1B-16
    • § 1B:4.5 : Investment Objectives, Policies and Restrictions1B-17
      • [A] : General Requirements1B-17
      • [B] : Fundamental Objectives, Policies and Restrictions1B-17
      • [C] : Non-Fundamental Objectives, Policies, and Restrictions1B-17
      • [D] : Administrative Policies1B-18
  • § 1B:5 : Mutual Fund Governance: The Board of Directors1B-18
    • § 1B:5.1 : Critical Role1B-18
    • § 1B:5.2 : Independence1B-18
      • [A] : Qualifications1B-19
        • [A][1] : Percentage of Independent Directors and Independent Chair1B-19
      • [B] : Election of Board Members1B-20
    • § 1B:5.3 : Fiduciary Duty to the Fund and its Investors1B-21
      • [A] : Evaluation of Management Arrangements1B-21
      • [B] : Evaluation of Distribution Arrangements1B-22
      • [C] : Approval of Distribution Plan1B-22
      • [D] : Oversight by Fund Boards of Investment Adviser Trading of Portfolio Securities and Use of Soft Dollars1B-22
      • [E] : Approval of Affiliated Transactions1B-23
      • [F] : Other Responsibilities1B-23
    • § 1B:5.4 : Directors Serving on Multiple Boards1B-24
  • § 1B:6 : Mutual Fund Service Providers1B-25
    • § 1B:6.1 : Investment Adviser1B-25
      • [A] : Portfolio Management1B-25
      • [B] : Sponsor Responsibilities1B-25
      • [C] : Advisory Agreement and Advisory Fees1B-25
      • [D] : Termination and Assignment1B-27
    • § 1B:6.2 : Distributor/Principal Underwriter and Dealers1B-27
    • § 1B:6.3 : Administrator1B-28
      • [A] : Generally1B-28
      • [B] : Administrator’s Fee1B-28
    • § 1B:6.4 : Officers1B-28
    • § 1B:6.5 : Transfer Agent1B-28
    • § 1B:6.6 : Custodian1B-29
      • [A] : Duties1B-29
      • [B] : Requirements1B-29
      • [C] : Contract Approval1B-29
    • § 1B:6.7 : Independent Auditors1B-29
    • § 1B:6.8 : Legal Counsel1B-30
      • [A] : Fund Counsel1B-30
      • [B] : Independent Directors’ Counsel1B-30
  • § 1B:7 : Mutual Fund Registration and Disclosure1B-30
    • § 1B:7.1 : Federal Registration1B-30
      • [A] : Regulatory Regime1B-30
      • [B] : Eligible Investors1B-31
      • [C] : Content1B-31
      • [D] : Plain English1B-32
      • [E] : Three-Part Disclosure Format1B-32
      • [F] : Risk/Return Summary; Summary Prospectus1B-33
    • § 1B:7.2 : The Registration Process1B-34
      • [A] : Timing Considerations1B-34
        • [A][1] : Offers1B-34
        • [A][2] : Filing Fees1B-34
      • [B] : State Registration1B-34
    • § 1B:7.3 : Additional Disclosure and Reporting Requirements1B-35
      • [A] : Semi-Annual Reports to the SEC and Shareholders1B-35
      • [B] : Form N-CSR1B-35
      • [C] : Quarterly Reports1B-35
      • [D] : Proxy Statements and Proxy Voting1B-36
      • [E] : Portfolio Manager Disclosure1B-37
      • [F] : Enhanced SEC Disclosure Requirements Relating to Directors1B-38
  • § 1B:8 : Mutual Fund Distribution Alternatives1B-38
    • § 1B:8.1 : Generally1B-38
    • § 1B:8.2 : Sales Charges1B-38
      • [A] : Front-End Loads1B-39
      • [B] : Back-End Loads1B-39
      • [C] : No-Load1B-39
    • § 1B:8.3 : Use of Ongoing Fees to Finance Distribution1B-39
    • § 1B:8.4 : Multiple Class Funds1B-40
    • § 1B:8.5 : Distribution Channels1B-41
  • § 1B:9 : Regulatory Requirements and Restrictions that Affect Mutual Fund Operation1B-41
    • § 1B:9.1 : Diversification1B-41
    • § 1B:9.2 : Investment in Other Investment Companies1B-42
    • § 1B:9.3 : Investments in Securities-Related Businesses1B-42
    • § 1B:9.4 : Senior Securities1B-42
    • § 1B:9.5 : Affiliated Transactions1B-43
    • § 1B:9.6 : Money Market Funds1B-43
    • § 1B:9.7 : Valuation and Pricing1B-47
      • [A] : Share Pricing1B-47
      • [B] : Market Timing1B-48
      • [C] : Late Trading1B-48
      • [D] : Fair Value Pricing.1B-49
      • [E] : Redemption Fees1B-49
    • § 1B:9.8 : Fidelity Bonding1B-50
  • § 1B:10 : Other Significant Aspects of Mutual Fund Regulation and Operation1B-50
    • § 1B:10.1 : Joint Regulation by the CFTC of Certain Funds1B-50
    • § 1B:10.2 : Selected Tax Considerations1B-52
      • [A] : Pass-Through Tax Treatment1B-52
      • [B] : Diversification1B-52
      • [C] : Withholding1B-53
    • § 1B:10.3 : Compliance1B-53
    • § 1B:10.4 : Red Flags Rules1B-54
  • § 1B:11 : Mutual Fund Litigation1B-54
    • § 1B:11.1 : Management Fee Litigation1B-54
      • [A] : The Gartenberg Cases1B-54
      • [B] : The Jones Case1B-55
    • § 1B:11.2 : Disclosure Litigation1B-57
    • § 1B:11.3 : Other Mutual Fund Litigation1B-58
  • § 1B:12 : Recent Regulatory Developments1B-59
    • § 1B:12.1 : Investments in Derivatives1B-59
    • § 1B:12.2 : Growing Use of Alternative and Hedge Fund Strategies in Mutual Funds1B-60
    • § 1B:12.3 : Asset Management and Financial Stability1B-60
  • Appendix 1B-A : Model Timetable for Launch of a U.S. Registered Mutual FundApp. 1B-A-1
Chapter 2: Fund Formation
  • § 2:1 : Form of Organization2-2
    • § 2:1.1 : Choice of Form2-2
    • § 2:1.2 : Governance2-6
  • § 2:2 : Structural Issues2-7
    • § 2:2.1 : Series Funds2-7
    • § 2:2.2 : Multi-Class Funds2-8
      • [A] : Disclosure Requirements2-9
    • § 2:2.3 : Master-Feeder Funds2-9
      • [A] : Disclosure Requirements for Multi-Class and Master-Feeder Funds2-10
    • § 2:2.4 : Fund of Funds2-10
  • § 2:3 : Fund Names2-12
    • § 2:3.1 : 80% Test2-12
    • § 2:3.2 : Country, International, and Global Funds2-12
    • § 2:3.3 : Use of “Guaranteed” or “Insured”2-13
    • § 2:3.4 : Use of “Tax-Exempt” or “Tax-Free”2-13
    • § 2:3.5 : Maturity of Trust Portfolio2-13
    • § 2:3.6 : Balanced Funds2-14
    • § 2:3.7 : Duration of Fund Portfolio2-14
    • § 2:3.8 : Money Market Funds2-14
    • § 2:3.9 : Other2-15
  • § 2:4 : Necessary Agreements2-15
    • § 2:4.1 : Seed Money2-15
    • § 2:4.2 : Advisory Agreement2-15
    • § 2:4.3 : Underwriting or Distribution Agreements2-17
    • § 2:4.4 : Distribution-Related Agreements2-17
    • § 2:4.5 : Transfer Agency Agreement2-19
    • § 2:4.6 : Service Contracts with Affiliates2-20
    • § 2:4.7 : Custodial Arrangements2-21
  • § 2:5 : Compliance Policies and Procedures2-22
    • § 2:5.1 : Areas of Concern2-22
    • § 2:5.2 : Procedures2-22
Chapter 2A: Fund Names
  • § 2A:1 : Introduction2A-2
  • § 2A:2 : Legislative and Regulatory Background2A-3
    • § 2A:2.1 : Legislative Basis2A-3
    • § 2A:2.2 : Early Operation of Section 35(d)2A-4
    • § 2A:2.3 : SEC Rule 35d-12A-6
    • § 2A:2.4 : Rule 35d-1: Key Differences between Proposal and Adoption2A-9
    • § 2A:2.5 : Names Not Included Under Rule 35d-12A-10
  • § 2A:3 : Administration of Section 35(d) and the Names Rule2A-10
    • § 2A:3.1 : SEC Administration2A-10
    • § 2A:3.2 : Private Right of Action Under Section 35(d)2A-11
  • § 2A:4 : Compliance with the Names Rule—Generally2A-13
    • § 2A:4.1 : Shareholder Communication2A-13
      • [A] : Approval2A-13
      • [B] : Notice2A-14
    • § 2A:4.2 : Assets to Which 80% Requirement Applies2A-15
    • § 2A:4.3 : Avoiding Confusion Because of Similarly Named Funds2A-15
    • § 2A:4.4 : “Under Normal Circumstances”/“Temporary Defensive Positions”2A-16
  • § 2A:5 : Compliance with the Names Rule—Specific Topics and Issues2A-17
    • § 2A:5.1 : Index Funds2A-17
    • § 2A:5.2 : “Global” and “International”2A-17
      • [A] : Generally2A-17
      • [B] : “Go Anywhere” Funds2A-19
    • § 2A:5.3 : Geographic Regions2A-19
      • [A] : Generally2A-19
      • [B] : “Non-U.S. Companies”2A-20
    • § 2A:5.4 : Tax-Exempt Funds2A-21
      • [A] : Generally2A-21
      • [B] : Single State Tax-Exempt Funds2A-21
      • [C] : “Municipal”/“Municipal Bond”2A-22
    • § 2A:5.5 : “Tax Sensitive” Funds2A-22
    • § 2A:5.6 : Names Suggesting Protection from Loss2A-22
    • § 2A:5.7 : “Small-cap”/“Mid-cap”/“Large-cap Funds”2A-23
    • § 2A:5.8 : “High-Yield” Funds2A-24
    • § 2A:5.9 : “Income” Funds2A-25
    • § 2A:5.10 : Money Market Funds2A-26
    • § 2A:5.11 : “Commodity Strategy”2A-26
    • § 2A:5.12 : “Short-term”/“Intermediate-term”/“Long-term”2A-27
    • § 2A:5.13 : “Duration”2A-28
    • § 2A:5.14 : Made-Up Words2A-29
    • § 2A:5.15 : “Cute and Catchy” Names2A-29
    • § 2A:5.16 : Target Date Funds2A-31
    • § 2A:5.17 : Derivatives2A-33
      • [A] : Background2A-33
      • [B] : Formal SEC Guidance2A-33
      • [C] : Value2A-35
      • [D] : Determination of the Issuer2A-36
Chapter 3: Capital Structure
  • § 3:1 : Introduction3-3
  • § 3:2 : Voting Rights3-4
  • § 3:3 : Prohibition on Issuance of Senior Securities by Open-End Funds3-5
    • § 3:3.1 : Application of Senior Security Restrictions to Leveraged Investments3-7
      • [A] : What Is Leverage?3-7
      • [B] : Satisfying Leveraging Concerns by Covering3-8
        • [B][1] : Covering a Senior Security with a Segregated Account3-8
        • [B][2] : Covering a Senior Security with an Offsetting Position3-10
        • [B][3] : Covering Straddles3-12
      • [C] : Duties of Fund Directors Regarding Leveraged Instruments3-13
    • § 3:3.2 : Application of Senior Security Restrictions to Differences in Shareholder Rights: Series and Classes3-14
      • [A] : Series Funds3-14
      • [B] : Multiple Class Funds3-16
        • [B][1] : Background3-16
        • [B][2] : Rule 18f-3 Exemption3-17
        • [B][3] : Tax Issues for Multiple Class Funds3-19
    • § 3:3.3 : Senior Security Issues Raised with Respect to Distributions3-20
  • § 3:4 : Issuance of Warrants3-21
  • § 3:5 : Redemptions in Kind3-22
  • § 3:6 : Regulatory Structure Applicable to the Capital Structure for Closed-End Funds3-23
Chapter 4: Prospectus Disclosure and Delivery Requirements
  • § 4:1 : Federal and State Registration Requirements4-2
    • § 4:1.1 : Registration Under the Securities Act and the Investment Company Act4-2
    • § 4:1.2 : The Federal Registration Process4-3
      • [A] : Applicable Forms4-3
      • [B] : Automatic Effectiveness—Delaying Amendment4-3
      • [C] : Filing Fees4-4
      • [D] : Staff Review Process4-4
      • [E] : Sales Efforts While Registration Statement Is Pending at SEC4-5
      • [F] : Filing Final Prospectus4-6
    • § 4:1.3 : General Registration Rules and Regulations4-6
    • § 4:1.4 : State Registration Requirements4-7
  • § 4:2 : General Disclosure Requirements4-8
    • § 4:2.1 : General Disclosure Guidance4-8
    • § 4:2.2 : Clear, Concise and Understandable Documents4-9
    • § 4:2.3 : Liability Issues4-11
  • § 4:3 : Form N-1A4-14
    • § 4:3.1 : General Instructions4-15
      • [A] : Registration Fees4-15
      • [B] : Organization of Material4-15
      • [C] : Date of Prospectus4-15
      • [D] : Incorporation by Reference4-15
      • [E] : Inclusion of Sales Material4-16
    • § 4:3.2 : Relation of the Prospectus to the SAI4-17
      • [A] : The Statutory Prospectus4-17
      • [B] : The Summary Prospectus4-19
    • § 4:3.3 : Investment Objectives4-19
    • § 4:3.4 : Investment Strategies and Risks4-20
    • § 4:3.5 : Performance Information4-24
    • § 4:3.6 : Fee Table4-25
    • § 4:3.7 : Statement of Additional Information4-26
    • § 4:3.8 : Part C4-27
      • [A] : Opinion and Consent of Counsel4-27
      • [B] : Directors, Officers, and Partners of the Fund’s Adviser4-28
      • [C] : XBRL Interactive Data Exhibit4-28
      • [D] : Exhibit Index4-28
      • [E] : Required Signatures4-28
  • § 4:4 : Prospectus Updates4-29
    • § 4:4.1 : Annual Amendment of the Registration Statement4-30
      • [A] : Information to Be Updated4-30
      • [B] : Rule 4854-32
    • § 4:4.2 : Interim Updates4-34
  • § 4:5 : Delivery Requirements4-36
    • § 4:5.1 : Delivery of Preliminary Prospectus4-36
    • § 4:5.2 : Delivery of Final Prospectus and Supplements4-36
      • [A] : Initial Delivery4-36
      • [B] : Summary Prospectus: Accessibility of Statutory Prospectus, SAI, and Shareholder Reports4-37
      • [C] : Summary Prospectus: Delivery of Statutory Prospectus Upon Request4-38
  • § 4:6 : Use of Electronic Media4-39
    • § 4:6.1 : Consent to Electronic Delivery4-39
    • § 4:6.2 : Notice, Access, and Proof of Delivery4-40
    • § 4:6.3 : Hyperlinks4-41
Chapter 5: Shareholder Reports; and Appendix 5A
  • § 5:1 : General Reporting Requirements5-2
    • § 5:1.1 : Shareholder Reports5-2
    • § 5:1.2 : Other Publicly Available Reports5-2
  • § 5:2 : Contents of Shareholder Reports5-3
    • § 5:2.1 : General Investment Company Act Requirements5-3
    • § 5:2.2 : Semiannual Report Requirements5-4
      • [A] : Financial Information5-4
      • [B] : Portfolio Information5-4
      • [C] : Basis for Approval of Investment Advisory Contract5-5
      • [D] : Expense Example5-6
      • [E] : Proxy Information5-6
      • [F] : XBRL Interactive Data Format5-6
    • § 5:2.3 : Annual Report Requirements5-6
      • [A] : Management Discussion of Performance5-6
      • [B] : Performance Graph5-7
      • [C] : Performance Table5-8
    • § 5:2.4 : Form N-CSR5-8
      • [A] : Officer Certification5-8
      • [B] : Substantive Requirements5-9
  • § 5:3 : Delivery of Shareholder Reports5-10
    • § 5:3.1 : Householding of Reports5-10
    • § 5:3.2 : Electronic Delivery of Reports5-10
      • [A] : Current Requirements5-10
      • [B] : Proposed New Requirements5-11
Chapter 6: Regulation of the Advisory Contract
  • § 6:1 : Introduction6-2
    • § 6:1.1 : Relevant Statutory and Regulatory Provisions6-2
      • [A] : Section 15: Investment Advisory Contracts6-2
      • [B] : Rule 15a-2: Annual Continuance of Contracts6-6
      • [C] : Rule 15a-4: Temporary Exemption for Certain Investment Advisers6-7
      • [D] : Section 36(b): Breach of Fiduciary Duty6-9
  • § 6:2 : Terms of the Advisory Contract6-11
    • § 6:2.1 : Section 15 Requirements6-11
    • § 6:2.2 : Initial Approval and Continuation of the Advisory Contract6-12
    • § 6:2.3 : Scope of Services6-14
    • § 6:2.4 : Fees6-15
  • § 6:3 : Terminating and Amending the Advisory Contract6-16
  • § 6:4 : Sub-Advisory Contracts6-18
  • § 6:5 : Assigning the Advisory Contract6-21
    • § 6:5.1 : Section 15(f) Safe Harbor6-23
  • § 6:6 : Liability6-24
  • § 6:7 : Role of the Fund’s Board of Directors6-26
    • § 6:7.1 : Practice Pointers: Director Approval of Advisory Contracts6-35
Chapter 7: Regulation of Advisory Fees
  • § 7:1 : Introduction7-1
  • § 7:2 : Section 36(b)—The Adviser’s Fiduciary Duty7-3
    • § 7:2.1 : Background7-3
    • § 7:2.2 : The Section 36(b) Standard7-4
    • § 7:2.3 : Judicial Interpretations7-4
      • [A] : Profitability7-8
      • [B] : Economies of Scale7-10
      • [C] : Disinterested Directors7-11
  • § 7:3 : Performance Fees7-13
Chapter 8: Restrictions on Investments
  • § 8:1 : Introduction8-3
  • § 8:2 : Disclosure of and Adherence to Investment Policies8-4
    • § 8:2.1 : Disclosure of Investment Policies8-4
      • [A] : Recital of Policies (Section 8(b)(1))8-4
        • [A][1] : Classifications and Sub-Classifications (Sections 4 and 5)8-5
        • [A][2] : Concentration Policies8-7
      • [B] : Fundamental Investment Policies (Sections 8(b)(2) and 8(b)(3))8-9
    • § 8:2.2 : Diversification Requirements8-9
    • § 8:2.3 : Changes in Policies8-11
  • § 8:3 : Direct Restrictions on Investments8-12
    • § 8:3.1 : Prohibited Trading Activities (Section 12(a))8-12
    • § 8:3.2 : Prohibitions on Investments in Other Investment Companies (Section 12(d)(1))8-14
      • [A] : Restrictions on Purchases and Sales8-15
      • [B] : Excepted Securities8-18
      • [C] : Excepted Fund Types8-18
        • [C][1] : Section 12(d)(1)(E)8-18
        • [C][2] : Section 12(d)(1)(F)8-20
        • [C][3] : Section 12(d)(1)(G) (Fund of Funds)8-21
        • [C][4] : Section 12(d)(1)(J) (General Exemptive Authority)8-23
          • [C][4][a] : Rule 12d1-1—The Money Market Funds Exemption8-25
          • [C][4][b] : Rule 12d1-1—Conditions8-27
          • [C][5] : Disclosure8-27
        • [C][6] : Proposed Rule 12d1-4—Fund Investments8-27
    • § 8:3.3 : Prohibitions on Investments in Insurance Companies (Section 12(d)(2))8-28
    • § 8:3.4 : Prohibitions on Investments in Broker-Dealers, Underwriters and Investment Advisers (Section 12(d)(3))8-29
    • § 8:3.5 : Investments in Promotional Enterprises8-32
    • § 8:3.6 : Liquidity8-32
  • § 8:4 : Fund Names8-35
Chapter 8A: Derivatives Activities
  • § 8A:1 : Introduction8A-2
  • § 8A:2 : What Is a Derivative?8A-4
  • § 8A:3 : How Do Funds Use Derivatives?8A-5
    • § 8A:3.1 : Overview8A-5
    • § 8A:3.2 : Types of Derivatives8A-6
  • § 8A:4 : Tax Considerations8A-7
  • § 8A:5 : August 2001 SEC Concept Release8A-8
    • § 8A:5.1 : Overview8A-8
    • § 8A:5.2 : Restrictions on Senior Securities8A-8
      • [A] : Overview8A-8
      • [B] : SEC Release 10,6668A-9
      • [C] : Staff “No-Action” Letters8A-10
      • [D] : Alternative Approaches to Compliance with Section 188A-10
  • § 8A:6 : Diversification Requirements8A-11
    • § 8A:6.1 : Overview8A-11
    • § 8A:6.2 : Alternative Approaches8A-11
  • § 8A:7 : Exposure to Securities-Related Issuers Through Derivatives8A-12
    • § 8A:7.1 : Overview8A-12
    • § 8A:7.2 : Alternative Approaches8A-13
  • § 8A:8 : Portfolio Concentration8A-13
    • § 8A:8.1 : Overview8A-13
    • § 8A:8.2 : Alternative Approaches8A-14
  • § 8A:9 : Valuation of Derivatives8A-14
  • § 8A:10 : Collateral and Margin8A-14
  • § 8A:11 : Disclosure Requirements8A-15
    • § 8A:11.1 : Overview8A-15
    • § 8A:11.2 : Alternative Approaches8A-15
  • § 8A:12 : Oversight by Board of Directors8A-15
  • § 8A:13 : CFTC Considerations8A-16
  • § 8A:14 : Conclusion8A-19
Chapter 9: Effecting Trades
  • § 9:1 : Introduction9-1
  • § 9:2 : Restrictions on Relationships with Affiliated Underwriters9-2
    • § 9:2.1 : Permissible Acquisitions During an Underwriting or Selling Syndicate9-3
      • [A] : Type of Security9-3
      • [B] : Timing and Price9-5
      • [C] : Percentage Limitation9-6
      • [D] : Firm Commitment Underwriting9-7
      • [E] : Reasonable Compensation9-7
      • [F] : No Purchase from Affiliates9-7
      • [G] : Board Oversight9-8
      • [H] : Periodic Reporting9-9
      • [I] : Record Keeping9-9
  • § 9:3 : Restrictions on Effecting Agency Trades Through Affiliates9-9
    • § 9:3.1 : Rule 17e-1: Brokerage Transactions on a Securities Exchange9-10
      • [A] : Reasonableness of Compensation9-10
      • [B] : Board Oversight9-10
      • [C] : Record Keeping9-11
  • § 9:4 : Regulation Under the Investment Advisers Act of 19409-12
Chapter 10: Custody of Mutual Fund Assets
  • § 10:1 : Introduction10-2
  • § 10:2 : Rule 17f-1 Under the Investment Company Act—Custody with a Broker-Dealer10-2
  • § 10:3 : Rule 17f-2 Under the Investment Company Act—Self-Custody by the Investment Company10-3
  • § 10:4 : Rule 17f-3 Under the Investment Company Act—Free Cash Accounts for Investment Companies with Bank Custodians10-4
  • § 10:5 : Rule 17f-4 Under the Investment Company Act—Deposits of Securities in Securities Depositories10-5
  • § 10:6 : Rule 17f-5 Under the Investment Company Act—Foreign Custody10-9
    • § 10:6.1 : Selection of an Eligible Foreign Custodian10-10
    • § 10:6.2 : Contract10-11
    • § 10:6.3 : Monitoring the Foreign Custody Arrangements10-11
    • § 10:6.4 : Registered Canadian Funds10-12
  • § 10:7 : Rule 17f-6 Under the Investment Company Act—Custody of Investment Company Assets with Futures Commission Merchants and Commodity Clearing Organizations10-12
  • § 10:8 : Rule 17f-7 Under the Investment Company Act—Foreign Custody and Eligible Securities Depositories10-13
Chapter 11: Proxy Voting
  • § 11:1 : Introduction11-1
  • § 11:2 : Proxy Voting Requirements Applying to Mutual Funds11-3
    • § 11:2.1 : Funds Covered Under the Rules11-3
    • § 11:2.2 : Disclosure of Proxy Voting Policies and Procedures11-3
      • [A] : Whose Policies and Procedures Are Required to Be Disclosed?11-4
      • [B] : What Type of Disclosure Is Required About the Policies and Procedures?11-4
    • § 11:2.3 : Disclosure of Actual Voting Records11-5
      • [A] : Mechanism for Disclosing Voting Record to SEC11-5
      • [B] : Mechanism for Disclosing Voting Record to Shareholders11-6
  • § 11:3 : Proxy Rules Under the Advisers Act: Rule 206(4)-611-7
    • § 11:3.1 : Written Policies and Procedures11-7
    • § 11:3.2 : Disclosures to Clients About How to Obtain Voting Information11-9
    • § 11:3.3 : Description of Policies and Procedures11-9
    • § 11:3.4 : Record Keeping11-9
  • § 11:4 : DOL Guidance with Respect to Advisers Managing Pension Plans11-10
Chapter 12: Protection Against Conflicts of Interest
  • § 12:1 : Introduction12-2
  • § 12:2 : Definition of Affiliated Person12-4
  • § 12:3 : Transactional Prohibitions of Section 17(a)12-10
    • § 12:3.1 : Section 17(a)(1)12-11
    • § 12:3.2 : Section 17(a)(2)12-13
    • § 12:3.3 : Section 17(a)(3)12-14
    • § 12:3.4 : Section 17(a)(4)12-15
    • § 12:3.5 : Interaction of Section 17(a)(1), (2), and (3)12-15
    • § 12:3.6 : Portfolio Affiliates12-19
  • § 12:4 : Section 17(a)—Exemptive Provisions12-21
    • § 12:4.1 : Section 17(a)(1)—Statutory Exception12-21
    • § 12:4.2 : Section 17(c)—Exception in the Ordinary Course of Business12-22
    • § 12:4.3 : Rule 17a-4—Exemption of Transactions Pursuant to Certain Contracts12-22
    • § 12:4.4 : Rule 17a-6—Exemption of Transactions with Certain Affiliated Persons12-22
      • [A] : Transactions with Portfolio Affiliates12-23
    • § 12:4.5 : Rule 17a-7—Exemption of Certain Purchase or Sale Transactions Between an Investment Company and Certain Affiliated Persons12-24
    • § 12:4.6 : Rule 17a-8—Mergers of Certain Affiliated Investment Companies12-25
    • § 12:4.7 : Rule 17a-9—Purchase of Certain Securities from a Money Market Fund by an Affiliate or an Affiliate of an Affiliate12-26
    • § 12:4.8 : Rule 17a-10—Subadviser Affiliates12-27
    • § 12:4.9 : Section 17(b)—Exemptive Orders12-28
  • § 12:5 : Section 17(d) and Rule 17d-112-31
    • § 12:5.1 : Bunching12-43
    • § 12:5.2 : Allocation12-46
    • § 12:5.3 : Litigation Issues12-48
    • § 12:5.4 : Closed-End Funds—Expenses of Proxy Contests12-49
    • § 12:5.5 : Affiliated Service Arrangements12-51
  • § 12:6 : Section 17(e)12-52
    • § 12:6.1 : The “Causal Connection”12-56
    • § 12:6.2 : Section 17(e)(2)12-59
  • § 12:7 : Section 17(j) and Rule 17j-112-60
    • § 12:7.1 : SEC Enforcement of Rule 17j-112-61
    • § 12:7.2 : Industry Blue-Ribbon Panel12-62
Chapter 13: Personal Trading Activities
  • § 13:1 : Introduction13-2
  • § 13:2 : Regulating Personal Trading Under the Investment Company Act13-2
    • § 13:2.1 : Background and Scope of Rule 17j-113-2
    • § 13:2.2 : Additional Requirements of Rule 17j-113-5
      • [A] : Board Oversight13-5
      • [B] : Annual Issues and Certification Reports13-5
      • [C] : Reports by Access Persons13-6
      • [D] : Pre-Approval Requirements13-7
      • [E] : Public Disclosure13-8
      • [F] : Record Keeping13-9
  • § 13:3 : Regulating Personal Trading Under the Investment Advisers Act13-9
    • § 13:3.1 : General Fiduciary Standards13-9
    • § 13:3.2 : Insider Trading Procedures13-10
    • § 13:3.3 : Code of Ethics Requirements13-10
      • [A] : Standards of Conduct13-11
      • [B] : Reporting of Personal Securities Transactions13-11
      • [C] : Pre-Approval of Certain Investments13-12
    • § 13:3.4 : Form ADV Disclosure13-13
    • § 13:3.5 : Record-Keeping Requirements13-13
  • § 13:4 : Enforcement Actions13-14
  • § 13:5 : Conclusion13-17
Chapter 14: Board Structure and Processes
  • § 14:1 : Overview14-2
  • § 14:2 : General Fiduciary Duties of Directors14-3
    • § 14:2.1 : State Law14-3
    • § 14:2.2 : Investment Company Act14-4
  • § 14:3 : Specific Duties Imposed Upon Directors by the Investment Company Act14-5
    • § 14:3.1 : Service Providers to Investment Companies14-5
    • § 14:3.2 : Investment Practices and Performance14-8
    • § 14:3.3 : Brokerage Allocation14-8
    • § 14:3.4 : Ensuring That Brokerage Selection Is Not Influenced by Fund Share Distribution Activities14-9
    • § 14:3.5 : Soft Dollars14-10
    • § 14:3.6 : Trade Allocation Practices14-10
    • § 14:3.7 : Valuation of Portfolio Holdings and Pricing of Fund Shares14-11
    • § 14:3.8 : Determining Portfolio Liquidity14-11
    • § 14:3.9 : Money Market Funds14-11
    • § 14:3.10 : Custody Arrangements14-13
    • § 14:3.11 : Exemptive Rules for Transactions Involving Affiliates14-13
    • § 14:3.12 : Securities Lending Programs and Guidelines14-14
    • § 14:3.13 : Fidelity Bond Arrangements14-14
    • § 14:3.14 : Proxy Voting14-14
    • § 14:3.15 : Market Timing14-14
    • § 14:3.16 : Selective Disclosure of Portfolio Holdings14-15
    • § 14:3.17 : Closed-End Fund Share Trading Discounts14-15
    • § 14:3.18 : Codes of Ethics Under the Investment Company Act and the Sarbanes-Oxley Act14-15
    • § 14:3.19 : Risk Oversight14-16
  • § 14:4 : Duties Imposed Under State Law14-17
  • § 14:5 : Board Structure14-17
    • § 14:5.1 : Board Composition—Requirement for Independent Directors14-17
      • [A] : Definition of Interested Person14-17
      • [B] : Affiliations with Broker-Dealers, Underwriters, Investment Bankers and Commercial Banks14-20
      • [C] : Percentage of Directors Who Must Be Independent14-20
    • § 14:5.2 : Single and Multiple Fund Directors14-21
    • § 14:5.3 : Independent Counsel to the Board14-22
    • § 14:5.4 : Independent Chairman of the Board and Lead Directors14-23
    • § 14:5.5 : Committees14-24
      • [A] : Responsibilities of the Audit Committee14-24
      • [B] : Nominating Committee14-25
    • § 14:5.6 : Director Compensation14-26
    • § 14:5.7 : Disqualification of Directors14-26
    • § 14:5.8 : Annual Self-Assessments14-27
    • § 14:5.9 : Separate Sessions14-27
    • § 14:5.10 : Independent Director Staff and Other Resources14-27
    • § 14:5.11 : Independent Directors/CCO Relationship14-28
  • § 14:6 : Requirement to Elect Directors14-29
    • § 14:6.1 : Background14-29
    • § 14:6.2 : Nominating Directors14-29
    • § 14:6.3 : Vacancies14-29
  • § 14:7 : Disclosure Requirements14-30
  • § 14:8 : Director Insurance and Indemnification14-32
  • § 14:9 : Best Practices14-33
Chapter 15: Shareholder Voting
  • § 15:1 : Overview15-2
  • § 15:2 : Requirements Under the Investment Company Act to Issue “Voting Securities”15-2
    • § 15:2.1 : Series of Shares15-3
    • § 15:2.2 : Classes of Shares15-4
    • § 15:2.3 : Voting by Share or Dollar Amount15-5
    • § 15:2.4 : Voting Percentages15-5
  • § 15:3 : Requirements Concerning the Holding of Shareholders’ Meetings15-5
    • § 15:3.1 : Annual Shareholders’ Meetings15-5
    • § 15:3.2 : Special Shareholders’ Meetings15-6
      • [A] : Directors15-6
      • [B] : Independent Accountants15-6
      • [C] : Investment Adviser Agreement, Underwriting Agreement and Rule 12b-1 Plan15-7
      • [D] : Change of Subclassification or Fundamental Policies15-7
  • § 15:4 : Solicitation of Shareholder Proxies15-7
    • § 15:4.1 : Proxy Statement and Proxy Card15-8
    • § 15:4.2 : Filing Requirements15-9
    • § 15:4.3 : Shareholder Proposals15-10
    • § 15:4.4 : Delivery of Proxies to Shareholders15-12
    • § 15:4.5 : State Law15-14
Chapter 16: Purchase and Sales of Mutual Fund Shares
  • § 16:1 : Introduction16-2
  • § 16:2 : Receipt of an Order16-3
    • § 16:2.1 : Determination of Receipt of Good Order16-3
    • § 16:2.2 : Effective Receipt of Order16-4
    • § 16:2.3 : Acceptable Delays in Executing Order16-5
  • § 16:3 : Calculation of Net Asset Value16-7
    • § 16:3.1 : Determination of When Market Quotes Are Readily Available16-7
    • § 16:3.2 : Fair Value Pricing16-11
      • [A] : Who Should Make the Fair Value Determination16-15
  • § 16:4 : Shareholder Redemptions16-18
Chapter 17: Redemption Fee Rule
  • § 17:1 : Overview17-1
  • § 17:2 : Administrative History17-2
    • § 17:2.1 : Proposal17-2
    • § 17:2.2 : Adoption17-2
    • § 17:2.3 : Amendments17-3
    • § 17:2.4 : Compliance Date17-3
    • § 17:2.5 : Funds Covered by the Rule17-4
  • § 17:3 : Redemption Fee17-5
    • § 17:3.1 : Board Determination17-5
    • § 17:3.2 : Features of Any Redemption Fee17-6
    • § 17:3.3 : Factors for Board Consideration17-9
  • § 17:4 : Shareholder Information Agreements17-10
  • § 17:5 : Industry Standardization Efforts17-14
  • § 17:6 : Implementation of Shareholder Agreement Requirement17-15
  • § 17:7 : Variable Insurance Products Funds17-18
  • § 17:8 : Conclusion17-21
Chapter 18: Valuation; and Appendix 18A
  • § 18:1 : Introduction18-2
  • § 18:2 : Requirement for Written Policies and Procedures18-3
  • § 18:3 : Role of the Board of Directors and Delegation by the Board18-4
    • § 18:3.1 : Delegation to a Committee18-5
    • § 18:3.2 : Oversight of Delegation18-7
  • § 18:4 : Fair Valuations18-8
    • § 18:4.1 : Illiquid Securities and Other Securities and Instruments with No Market Quotations18-9
    • § 18:4.2 : Significant Events18-9
      • [A] : Types of Significant Events18-9
      • [B] : Examples of Significant Events18-10
      • [C] : Monitoring for Significant Events18-11
      • [D] : Fair Valuation Services for Foreign Securities18-11
    • § 18:4.3 : Prices Determined Not to Be Reliable— Valuation Overrides18-12
  • § 18:5 : Procedural Controls18-13
  • § 18:6 : Correcting NAV Errors18-14
    • § 18:6.1 : Materiality Standard18-14
    • § 18:6.2 : Mechanics of Corrections18-15
      • [A] : Correction of Understated NAV18-15
      • [B] : Correction of Overstated NAV18-15
  • § 18:7 : Recent SEC Enforcement Actions18-16
  • Appendix 18A : Fund Policies and Procedures for Net Asset Value Error CorrectionApp. 18A-1
Chapter 19: Marketing Material
  • § 19:1 : Introduction19-3
  • § 19:2 : Statutory Framework19-4
  • § 19:3 : Special Rules for Mutual Fund Marketing Material19-5
    • § 19:3.1 : Rule 135a—“Generic Advertisement”19-6
    • § 19:3.2 : Rule 482 Advertisement19-6
      • [A] : Performance Generally19-8
      • [B] : Money Market Funds19-11
      • [C] : Other Funds19-11
      • [D] : Proposed Amendments Regarding Target Date Retirement Funds19-12
        • [D][1] : Use of Target Dates in Fund Names19-13
        • [D][2] : Asset Allocation Table, Chart, or Graph and Landing Point Allocation19-13
        • [D][3] : Disclosure of Risks and Considerations Relating to Target Date Funds19-14
        • [D][4] : Recommendations of the SEC Investor Advisory Committee19-15
        • [D][5] : Final Rules19-16
      • [E] : Mutual Fund Performance in ERISA Fee Disclosures19-16
    • § 19:3.3 : Rule 498—The Summary Prospectus19-16
  • § 19:4 : Anti-Fraud Provisions19-18
    • § 19:4.1 : Rule 156—False or Misleading Sales Literature19-18
      • [A] : “Sales Literature”19-19
      • [B] : “Misleading”19-19
      • [C] : Proposed Amendments Regarding Target Date Retirement Funds19-20
    • § 19:4.2 : Rule 34b-1 Under the 1940 Act19-21
    • § 19:4.3 : Additional Interpretive Positions19-22
      • [A] : General Considerations19-22
      • [B] : Interim Changes19-23
        • [B][1] : Changes to the Investment Objective19-23
        • [B][2] : Changes to the Investment Adviser19-24
        • [B][3] : Mergers and Similar Reorganization Transactions19-24
        • [B][4] : Changes in Sales Load or Expense Structure19-25
      • [C] : New Classes of Shares or Additional Feeder Funds19-25
      • [D] : Performance of Related Accounts19-26
  • § 19:5 : Marketing via the Internet and by Other Similar Electronic Means19-27
    • § 19:5.1 : Accompanied or Preceded by a Statutory Prospectus or Summary Prospectus19-28
    • § 19:5.2 : Hyperlinks19-29
    • § 19:5.3 : Other Issues19-32
  • § 19:6 : FINRA Conduct Rules, Guidelines, and Other Interpretive Positions19-32
    • § 19:6.1 : FINRA Rule 2210 (formerly NASD Conduct Rules 2210 and 2211)19-34
      • [A] : Definitions of Correspondence, Retail Communication and Institutional Communication19-34
      • [B] : Standards for Communicating with the Public19-35
      • [C] : Specific Standards for Retail Communications and Correspondence19-36
      • [D] : Standards and Procedures for Correspondence19-38
      • [E] : Standards and Procedures for Institutional Communications19-39
      • [F] : Performance Sales Material19-39
    • § 19:6.2 : FINRA Rule 2212—Rankings19-40
    • § 19:6.3 : FINRA Rule 2213—Bond Mutual Fund Volatility Ratings19-42
    • § 19:6.4 : Related Performance Information19-43
    • § 19:6.5 : Advertising Recent Fund Performance19-43
    • § 19:6.6 : Use of Pre-Inception Performance Data for Exchange Traded Products19-44
    • § 19:6.7 : Hyperlinks19-46
    • § 19:6.8 : Use of Social Media19-47
  • § 19:7 : Filing Requirements for Mutual Fund Marketing Material19-48
    • § 19:7.1 : SEC Filing Requirements19-48
    • § 19:7.2 : SEC Guidance Regarding Filing of Social Media19-48
    • § 19:7.3 : FINRA Filing Requirements19-49
  • § 19:8 : The Dodd-Frank Wall Street Reform and Consumer Protection Act19-50
    • § 19:8.1 : Study Regarding Mutual Fund Advertising19-50
    • § 19:8.2 : Study Regarding Financial Literacy Among Investors19-51
Chapter 19A: The Regulation of Electronic Advertising, Marketing, and Socializing by Mutual Funds
  • § 19A:1 : Introduction19A-2
  • § 19A:2 : Electronic Advertising and Marketing19A-4
    • § 19A:2.1 : Statutory and Regulatory Framework19A-4
    • § 19A:2.2 : Fund Communications—Advertising and Other Sales Material19A-5
      • [A] : Retail Communications19A-7
      • [B] : Institutional Communications19A-9
      • [C] : Correspondence and Other Individualized Communications19A-10
      • [D] : Special Electronic Advertising Issues19A-11
        • [D][1] : Banner Advertisements19A-11
        • [D][2] : Hyperlinks19A-11
        • [D][3] : Performance Advertising19A-15
        • [D][4] : Web Video and Television Advertising19A-16
        • [D][5] : Updating and Filing of Electronic Communications19A-17
      • [E] : FINRA’s Investment Analysis Tool Rule19A-18
  • § 19A:3 : Social Media19A-20
    • § 19A:3.1 : Federal Securities Law Developments19A-21
      • [A] : FINRA/NASD19A-21
      • [B] : SEC19A-23
    • § 19A:3.2 : State Securities Law Developments19A-26
    • § 19A:3.3 : Social Media Communications and Securities Regulations19A-27
      • [A] : Types of Interactive Electronic Communications and Filing Obligations19A-27
      • [B] : Supervision and Training19A-29
      • [C] : Recommendations and Suitability19A-30
      • [D] : Third-Party Posts and Hyperlinks19A-30
      • [E] : Recordkeeping19A-31
      • [F] : Compliance Programs19A-33
      • [G] : Testimonials19A-34
      • [H] : CFTC and NFA19A-36
  • § 19A:4 : Mobile Communications19A-38
  • § 19A:5 : Other Regulatory Issues19A-39
    • § 19A:5.1 : E-Mail Marketing19A-39
    • § 19A:5.2 : Text Messaging19A-40
    • § 19A:5.3 : Telemarketing19A-41
    • § 19A:5.4 : Federal Trade Commission Regulations19A-42
Chapter 20: Distribution; and Appendices 20A-20B
  • § 20:1 : Introduction20-4
  • § 20:2 : Registration of Mutual Fund Shares20-5
  • § 20:3 : Distribution Channels20-5
    • § 20:3.1 : Distribution by Fund Itself Without Use of a Distributor20-6
    • § 20:3.2 : Distribution Through a Distributor20-7
    • § 20:3.3 : Distribution Through Mutual Fund Platforms20-8
    • § 20:3.4 : Distribution Through Retirement Plans20-9
  • § 20:4 : Organizational Structures Facilitating Distribution20-9
    • § 20:4.1 : Multi-Class Funds20-9
    • § 20:4.2 : Master-Feeder Funds20-11
    • § 20:4.3 : Mutual Fund Wrap Programs20-12
    • § 20:4.4 : Fund of Funds20-13
  • § 20:5 : Regulation of Principal Underwriter/Distributor20-14
  • § 20:6 : Payments for Distribution20-15
    • § 20:6.1 : No-Load Funds20-15
      • [A] : Use of 12b-1 Plans by No-Load Funds20-15
    • § 20:6.2 : Load Funds20-17
      • [A] : Front-End Sales Loads20-18
      • [B] : Deferred Sales Loads20-18
    • § 20:6.3 : FINRA Regulation of Sales Charges20-20
    • § 20:6.4 : Other Types of Payments for Distribution: Revenue-Sharing and Directed Brokerage20-22
  • § 20:7 : Forward Pricing and Retail Price Maintenance20-23
    • § 20:7.1 : Forward Pricing System20-24
    • § 20:7.2 : Retail Price Maintenance20-25
  • § 20:8 : Board Responsibilities Over Fund Distribution20-28
    • § 20:8.1 : Approval of Principal Distributor and Distribution Agreement20-28
    • § 20:8.2 : Approval of Rule 12b-1 Distribution Plan20-30
    • § 20:8.3 : Approval of Rule 18f-3 Multi-Class Plan20-34
  • Appendix 20A : Text of Relevant Provisions of the Investment Company Act of 1940App. 20A-1
  • Appendix 20B : Sample 12b-1 PlanApp. 20B-1
Chapter 21: Distributing Mutual Funds Through Intermediaries: Practical Considerations Concerning Distribution Through Broker-Dealers, Fund Supermarkets and Retirement Plans
  • § 21:1 : Introduction21-2
    • § 21:1.1 : Broker-Dealers21-2
    • § 21:1.2 : Mutual Fund “Supermarkets”21-3
    • § 21:1.3 : Defined Contribution Retirement Plans21-5
    • § 21:1.4 : Section 529 Plans21-6
    • § 21:1.5 : Banks21-6
  • § 21:2 : Practical Considerations21-6
    • § 21:2.1 : Board Considerations21-6
      • [A] : Fees21-8
      • [B] : Proposal to Rescind Rule 12b-1 and Adopt Rule 12b-221-9
    • § 21:2.2 : Oversight21-10
    • § 21:2.3 : Use of Omnibus Accounts21-11
    • § 21:2.4 : Revenue Sharing and Shelf Space Payments21-11
    • § 21:2.5 : Recent SEC Focus on Payments to Distributors and Intermediaries21-13
  • § 21:3 : Forward-Pricing Requirements and the “Hard 4 P.M. Close”21-14
  • § 21:4 : Controls on Short-Term and Late Trading21-16
    • § 21:4.1 : Redemption Fees21-17
Chapter 21A: The Electronic Distribution of Mutual Funds
  • § 21A:1 : Introduction21A-2
  • § 21A:2 : Electronic Distribution and Delivery of Regulatory Documents21A-4
    • § 21A:2.1 : Regulatory and Statutory Framework21A-4
    • § 21A:2.2 : Early SEC Position21A-5
    • § 21A:2.3 : SEC Interpretive Releases on Electronic Delivery21A-5
      • [A] : Notice, Access, and Evidence to Show Delivery21A-5
        • [A][1] : Notice21A-6
        • [A][2] : Access21A-8
        • [A][3] : Evidence to Show Delivery21A-8
      • [B] : Delivery of Confirmation Statements and Electronic Security21A-10
      • [C] : Additional E-Delivery Interpretive Issues21A-11
        • [C][1] : Telephonic and Global Consents21A-11
        • [C][2] : Format of Documents21A-12
        • [C][3] : Envelope Theory21A-12
        • [C][4] : Electronic-Only Offerings21A-13
        • [C][5] : Special Cases21A-14
          • [C][5][a] : Mutual Fund Distribution Statements21A-14
          • [C][5][b] : Privacy Policies21A-15
          • [C][5][c] : Proxy Materials: “Notice and Access”21A-17
          • [C][5][d] : Summary Mutual Fund Prospectuses21A-17
          • [C][5][e] : “Access Equals Delivery”21A-18
    • § 21A:2.4 : Commodity Futures Trading Commission21A-19
    • § 21A:2.5 : Self-Regulatory Organization Position21A-20
      • [A] : Financial Industry Regulatory Authority21A-20
      • [B] : Municipal Securities Rulemaking Board21A-21
  • § 21A:3 : Document Delivery Under the Electronic Signatures in Global and National Commerce Act and the Uniform Electronic Transactions Act21A-21
    • § 21A:3.1 : Introduction21A-21
    • § 21A:3.2 : Scope of E-Sign and UETA21A-22
    • § 21A:3.3 : General Rule of Validity21A-24
    • § 21A:3.4 : Consumer Consent Provisions of E-Sign21A-24
    • § 21A:3.5 : Retention of Records Under E-Sign21A-27
    • § 21A:3.6 : Preemption of State Law21A-28
    • § 21A:3.7 : SEC Exceptions from E-Sign21A-29
    • § 21A:3.8 : Differences Between SEC Guidance and E-Sign and UETA21A-30
      • [A] : Telephonic Consent21A-30
      • [B] : Paper Consent21A-31
      • [C] : Evidence of Delivery21A-31
      • [D] : Global Consent21A-31
      • [E] : Notice Requirement21A-31
      • [F] : Electronic-Only Products21A-31
Chapter 22: 12b-1 Plan
  • § 22:1 : Introduction22-2
  • § 22:2 : Rule 12b-122-2
    • § 22:2.1 : “Load” Versus “No Load” Funds22-6
    • § 22:2.2 : FINRA Limitations22-7
    • § 22:2.3 : Use of 12b-1 Fees22-7
  • § 22:3 : Structuring a 12b-1 Plan22-8
    • § 22:3.1 : Required Elements of a 12b-1 Plan22-8
    • § 22:3.2 : Types of Plans—Compensation Plan Versus Reimbursement Plan22-10
  • § 22:4 : Compensation of Intermediaries22-11
    • § 22:4.1 : Fund Supermarkets22-11
    • § 22:4.2 : Use or Compensation of Intermediaries Selling Shares in Connection with Fund Portfolio Transactions22-13
    • § 22:4.3 : 12b-1 Plans for Funds Underlying Variable Insurance Contracts22-13
  • § 22:5 : Board Approval Process22-14
  • § 22:6 : Prohibition of Brokerage Direction22-15
  • § 22:7 : Certain Section 36(b) Cases Focusing on Rule 12b-122-16
  • § 22:8 : Recent Developments22-19
Chapter 23: Regulation of Mutual Fund Sales Practices
  • § 23:1 : Introduction23-2
  • § 23:2 : Broker-Dealer Suitability Obligations23-3
    • § 23:2.1 : FINRA Suitability Obligations23-3
      • [A] : NASD Rule 231023-3
      • [B] : FINRA Rule 211123-4
      • [C] : Recommendations to Customers23-5
      • [D] : Components of Suitability Obligations23-6
      • [E] : Customer’s Investment Profile23-7
      • [F] : Institutional Investors23-8
    • § 23:2.2 : Know-Your-Customer Obligations23-9
    • § 23:2.3 : Suitability Obligations Under the Federal Securities Laws23-10
    • § 23:2.4 : Disclosure Obligations23-12
    • § 23:2.5 : Switching Violations23-13
    • § 23:2.6 : Breakpoint Violations23-15
      • [A] : Sales Just Below Breakpoints23-15
      • [B] : Delivery of the Correct Breakpoint Discount23-16
    • § 23:2.7 : Multi-Class Mutual Funds23-19
    • § 23:2.8 : Online Suitability Issues23-22
    • § 23:2.9 : Bond Funds23-24
    • § 23:2.10 : Inverse and Leveraged ETFs23-25
  • § 23:3 : Cash and Non-Cash Compensation23-26
    • § 23:3.1 : Cash Compensation23-26
      • [A] : FINRA Regulation of Cash Compensation23-26
      • [B] : SEC Regulation of Revenue Sharing23-29
      • [C] : Directed Brokerage Arrangements23-30
    • § 23:3.2 : Non-Cash Compensation23-32
      • [A] : Gifts and Entertainment23-33
      • [B] : Training or Education Meetings23-34
      • [C] : Sales Contests23-36
    • § 23:3.3 : Record-Keeping Requirements23-37
  • § 23:4 : Bank Broker-Dealer Sales of Mutual Funds23-38
  • § 23:5 : Social Media Websites23-39
Chapter 24: SEC Record-Keeping Requirements; and Appendix 24A
  • § 24:1 : Introduction24-2
  • § 24:2 : Documents Required to be Maintained—Rule 31a-1 Under the Investment Company Act24-2
  • § 24:3 : Retention and Preservation Requirements—Rule 31a-2 Under the Investment Company Act24-3
    • § 24:3.1 : Alternatives to Hard Copy Storage—Rule 31a-2(f) Under the Investment Company Act24-4
      • [A] : Electronic Record Keeping24-4
  • § 24:4 : Maintenance of Books and Records by Third Parties—Rule 31a-3 Under the Investment Company Act24-4
  • § 24:5 : Advisers Act Record-Keeping Requirements24-5
  • § 24:6 : SEC’s Authority to Inspect Books and Records24-6
  • § 24:7 : Conclusion24-6
  • Appendix 24A : Retention Schedule of Materials Identified in Rules 31a-1 and 31a-2 Under the Investment Company ActApp. 24A-1
Chapter 25: SEC Inspections
  • § 25:1 : Overview25-3
  • § 25:2 : SEC Authority25-3
  • § 25:3 : Types and Scope of Examinations25-5
  • § 25:4 : Mechanics of an Inspection25-9
    • § 25:4.1 : Preparation25-9
      • [A] : SEC Preparation25-9
      • [B] : Preparation by the Firm25-9
      • [C] : Role of the CCO25-10
    • § 25:4.2 : The SEC’s Request for Information25-10
    • § 25:4.3 : “Culture of Compliance”25-11
    • § 25:4.4 : Issues Related to Document Production25-13
      • [A] : Privilege Issues25-15
      • [B] : Seeking Confidential Treatment25-19
    • § 25:4.5 : SEC’s Activity on the Premises25-20
    • § 25:4.6 : Notification of Findings25-20
    • § 25:4.7 : Responding to Deficiency Letters25-21
    • § 25:4.8 : Confidentiality of Findings25-22
  • § 25:5 : Current Focus Areas25-22
Chapter 26: Investment Adviser Compliance Programs
  • § 26:1 : Background26-2
    • § 26:1.1 : Text of Rule 206(4)-726-2
    • § 26:1.2 : Coverage26-3
  • § 26:2 : Adoption and Implementation of Written Policies and Procedures26-3
    • § 26:2.1 : Required Scope of Written Policies and Procedures26-3
    • § 26:2.2 : Format26-4
    • § 26:2.3 : Written Supervisory Procedures26-5
  • § 26:3 : Annual Review26-5
  • § 26:4 : Documenting and Reporting the Annual Review Findings26-6
    • § 26:4.1 : Practical Considerations Regarding Documentation of the Review’s Findings26-6
    • § 26:4.2 : Reporting Internally26-7
    • § 26:4.3 : Reporting to the SEC26-7
  • § 26:5 : Chief Compliance Officer26-8
  • § 26:6 : Record Keeping26-8
  • § 26:7 : SEC Enforcement Activity Related to Compliance Program Deficiencies26-8
  • § 26:8 : Requirements Under the Investment Company Act26-9
    • § 26:8.1 : Text of Rule 38a-126-10
    • § 26:8.2 : Adoption and Implementation of Written Policies and Procedures26-13
      • [A] : Required Scope of Written Policies and Procedures26-13
      • [B] : Oversight of Service Providers’ Policies and Procedures26-14
    • § 26:8.3 : Board Approval of Written Policies and Procedures26-15
    • § 26:8.4 : Annual Review26-16
    • § 26:8.5 : Chief Compliance Officer26-16
      • [A] : CCO Competency; Seniority in Organization26-16
      • [B] : CCO Independence from Fund Management26-16
      • [C] : CCO Report and Meeting with the Board26-16
      • [D] : Oversight of Service Providers26-17
    • § 26:8.6 : Record Keeping26-18
    • § 26:8.7 : Treatment of Unit Investment Trusts Under the Rule26-18
Chapter 27: Conducting an Investment Company/Adviser Compliance Review; and Appendices 27A-27B
  • § 27:1 : Introduction27-2
  • § 27:2 : Defining the Content of an Annual Compliance Review27-5
    • § 27:2.1 : Guidance from Auditing Standards27-5
  • § 27:3 : A Plan for an Annual Compliance Review27-8
    • § 27:3.1 : Assess the Culture of Compliance27-8
    • § 27:3.2 : Perform a “Gap” Analysis of the Compliance Procedures27-9
    • § 27:3.3 : Interviews of Key Personnel and Certifications27-9
    • § 27:3.4 : Testing27-10
    • § 27:3.5 : Follow Existing Procedures27-16
    • § 27:3.6 : Email Review27-17
    • § 27:3.7 : Testing the Compliance Procedures of Third Parties27-17
    • § 27:3.8 : The Haunting Challenge of the Market Timing Scandal27-18
  • § 27:4 : Documenting the Annual Review27-20
  • § 27:5 : Preserving Confidentiality27-21
    • § 27:5.1 : The Attorney-Client Privilege27-21
    • § 27:5.2 : Work-Product Doctrine27-22
    • § 27:5.3 : Self-Evaluative Privilege27-23
    • § 27:5.4 : Limitations of Possible Confidentiality27-23
  • § 27:6 : What Compliance Deficiencies Can Be Deemed Immaterial27-24
  • § 27:7 : Appropriate Remedial Measures When Problems Are Detected27-25
    • § 27:7.1 : Properly Investigate the Alleged Violation27-26
    • § 27:7.2 : Stop All Violative Conduct27-26
    • § 27:7.3 : Disclosing Violations27-27
      • [A] : Disclosure to the Regulators27-27
      • [B] : Disclosure to Clients27-27
    • § 27:7.4 : Compensating Clients for Injury27-28
    • § 27:7.5 : Disciplining Wrongdoers27-28
    • § 27:7.6 : Learning from Mistakes: Improving the Compliance System27-30
  • § 27:8 : Ethical Issues in Conducting Compliance Reviews27-30
    • § 27:8.1 : Code of Ethics of the Institute of Internal Auditors27-31
    • § 27:8.2 : CFA Institute27-32
    • § 27:8.3 : The AICPA27-32
    • § 27:8.4 : Difficult Issues in Developing a Code of Ethics for Compliance Professionals27-33
  • § 27:9 : Liability for a Defective Annual Review27-40
    • § 27:9.1 : Statutory Obligation to Supervise27-41
    • § 27:9.2 : Special Statutory Obligations to Supervise27-41
    • § 27:9.3 : Supervision as a Defense to Liability27-43
      • [A] : Control Person Liability and Liability in SEC Actions27-43
      • [B] : Directors’ Duty of Care27-44
      • [C] : Federal Sentencing Guidelines27-45
    • § 27:9.4 : Business Considerations27-46
  • Appendix 27A : Guidance on the Elements of a Successful Compliance ProgramApp. 27A-1
  • Appendix 27B : Detailed Descriptions of Possible Compliance TestsApp. 27B-1
Chapter 28: The Role of the Investment Company Chief Compliance Officer
  • § 28:1 : Introduction28-2
  • § 28:2 : Requirements of Rule 38a-128-3
  • § 28:3 : The CCO’s Responsibilities Under Rule 38a-128-4
    • § 28:3.1 : The Risk/Reward Equation28-4
    • § 28:3.2 : Contrasting the CCO’s Duties and Responsibilities with the Fund’s Duties and Responsibilities28-6
  • § 28:4 : Structuring the CCO Position28-8
    • § 28:4.1 : CCO Qualifications and Competence28-9
    • § 28:4.2 : Resource Availability28-9
    • § 28:4.3 : Independence28-10
    • § 28:4.4 : CCO Indemnification and Insurance28-11
  • § 28:5 : The CCO and Risk Management28-11
  • § 28:6 : The Annual Review Process28-13
    • § 28:6.1 : Compliance Risk Assessment28-14
    • § 28:6.2 : Testing Methodologies28-14
      • [A] : Transactional Testing28-15
      • [B] : Periodic Testing (Retesting Data)28-15
      • [C] : Forensic Testing (Trend Analysis)28-16
    • § 28:6.3 : The Annual Report28-17
  • § 28:7 : Post-Annual Review28-18
Chapter 29: Compliance Calendars
  • § 29:1 : Sample Compliance Calendar 1—Board of Directors Calendar29-2
  • § 29:2 : Sample Compliance Calendars 2 and 3—SEC Filings, Shareholder Mailings and Other Reports29-3
  • : Sample Compliance Calendar 129-4
  • : Sample Compliance Calendar 229-6
  • : Sample Compliance Calendar 329-9
Chapter 30: Mutual Fund Taxation
  • § 30:1 : Introduction30-2
  • § 30:2 : Requirements for Treatment As a Regulated Investment Company30-2
    • § 30:2.1 : Domestic Corporation30-3
    • § 30:2.2 : Registration As a Management Company30-4
    • § 30:2.3 : Election to Be a RIC30-5
    • § 30:2.4 : Income Test30-6
      • [A] : Dividends and Interest30-6
      • [B] : Payments with Respect to Securities Loans30-7
      • [C] : Gains from Sale or Other Disposition of Stock, Securities, or Foreign Currencies, and Other Income30-8
      • [D] : Net Income Derived from an Interest in a QPTP30-9
    • § 30:2.5 : Diversification Requirements30-10
      • [A] : Diversification Tests in General30-11
      • [B] : Market Fluctuation Exception and Thirty-Day Cure Period30-12
    • § 30:2.6 : Conversion of Existing C Corporation to RIC30-13
  • § 30:3 : Distribution Requirement30-14
    • § 30:3.1 : Distribution Requirement in General30-14
    • § 30:3.2 : Preferential Dividends30-15
    • § 30:3.3 : Year-End Dividends and Spillover Dividends30-16
  • § 30:4 : Taxation of Shareholders30-17
    • § 30:4.1 : Ordinary Dividends, Qualified Dividend Income, and Dividends Received Deduction30-17
    • § 30:4.2 : Capital Gain Dividends and Undistributed Capital Gains30-19
    • § 30:4.3 : Exempt-Interest Dividends30-20
    • § 30:4.4 : Foreign Tax Credits30-20
    • § 30:4.5 : Interest-Related and Short-Term Capital Gains Dividends30-22
    • § 30:4.6 : Designating the Dividend30-24
    • § 30:4.7 : Sale or Other Disposition of Shares30-24
      • [A] : Calculation of Gain and Loss30-24
      • [B] : Special RIC Loss Limitations30-25
      • [C] : Wash Sales30-25
      • [D] : Applicable Wash Sales30-25
  • § 30:5 : Taxation of RICs30-26
    • § 30:5.1 : Income Tax30-27
    • § 30:5.2 : Excise Tax30-27
  • § 30:6 : Master-Feeder Funds30-28
Chapter 31: Mutual Fund Accounting and Financial Reporting; and Appendix 31A
  • § 31:1 : Introduction31-2
  • § 31:2 : Net Asset Value Calculation31-3
    • § 31:2.1 : Portfolio Updating Standard: T +131-6
  • § 31:3 : Fund Financial Statements31-6
  • § 31:4 : Fund Accounting Operations31-10
  • § 31:5 : Responsibilities of the Independent Registered Public Accounting Firm31-12
  • § 31:6 : Qualifications of the Independent Auditor31-13
  • § 31:7 : Required Auditor Communications31-15
    • § 31:7.1 : Auditor Independence31-16
    • § 31:7.2 : Audit of Financial Statements31-16
    • § 31:7.3 : Internal Controls31-17
    • § 31:7.4 : Reporting Under Applicable Auditing Standards31-17
    • § 31:7.5 : The Sarbanes-Oxley Act31-18
  • § 31:8 : Valuation31-19
  • § 31:9 : Recent Fund Accounting and Financial Reporting Matters31-24
    • § 31:9.1 : Transparency and the Use of Emerging Fund Structures and Investment Techniques31-24
    • § 31:9.2 : Consolidation31-24
    • § 31:9.3 : Non-Traditional Swap Contracts31-26
  • § 31:10 : Conclusion31-26
  • Appendix 31A : Summary of Daily Activities of Fund AccountingApp. 31A-1
Chapter 32: Money Market Funds
  • § 32:1 : Introduction32-4
  • § 32:2 : What Is a Money Market Fund?32-5
  • § 32:3 : Rule 2a-732-9
    • § 32:3.1 : Exemption from Standard Valuation Procedures32-9
      • [A] : Current Exemption Under Rule 2a-732-9
      • [B] : The 2014 Amendments—Floating NAV Requirement for “Institutional” Non-Government Money Market Funds32-11
        • [B][1] : Government Money Market Funds Under the 2014 Amendments32-13
        • [B][2] : Retail Money Market Funds Under the 2014 Amendments32-14
        • [B][3] : Reorganization of Institutional and Retail Money Market Funds and Mandatory Redemptions Under the 2014 Amendments32-16
        • [B][4] : Tax and Accounting Implications of the Floating NAV Requirement32-18
    • § 32:3.2 : Liquidity Fees and Redemption Gates32-20
      • [A] : Duration and Lifting of Fees and Redemption Gates32-22
      • [B] : Board Considerations32-23
    • § 32:3.3 : Holding Out and Use of Names and Titles32-25
    • § 32:3.4 : Board Findings and Procedures for Rule 2a-7 Reliance32-26
      • [A] : Required Board Findings32-26
      • [B] : Required Procedures: Funds Using the Amortized Cost Method32-27
        • [B][1] : Shadow Pricing and Related Board Actions32-27
          • [B][1][a] : Required Board Action32-28
          • [B][1][b] : Disclosure of Shadow Pricing and Deviation32-29
      • [C] : Required Procedures: Funds Using the Penny-Rounding Pricing Method32-30
      • [D] : Specific Procedures: All Funds32-30
        • [D][1] : Stress Testing—Pre-2014 Amendments32-30
        • [D][2] : Stress Testing—Post-2014 Amendments32-32
        • [D][3] : Other Required Procedures32-34
    • § 32:3.5 : The Risk-Limiting Provisions32-36
      • [A] : Maturity32-36
        • [A][1] : Portfolio Maturity32-36
          • [A][1][a] : Calculating Weighted Average Life32-37
        • [A][2] : Maturity of Portfolio Securities32-38
          • [A][2][a] : Adjustable Rate Government Securities32-39
          • [A][2][b] : Variable Rate Securities32-39
          • [A][2][c] : Floating Rate Securities32-40
          • [A][2][d] : Repurchase Agreements32-40
          • [A][2][e] : Portfolio Lending Agreements32-41
          • [A][2][f] : Money Market Fund Shares32-41
      • [B] : Portfolio Quality32-42
        • [B][1] : U.S. Dollar Denominated Securities32-43
        • [B][2] : Securities Presenting Minimal Credit Risk32-44
        • [B][3] : Eligible Securities32-45
          • [B][3][a] : Eligible Security—First Tier and Second Tier Securities32-46
          • [B][3][b] : Eligible Security—Rated Securities32-47
          • [B][3][c] : Eligible Security—Unrated Securities32-48
          • [B][3][d] : Eligible Security—Securities Subject to Guarantees or Demand Features32-49
          • [B][3][e] : Designated NRSROs32-52
          • [B][3][f] : Removal of Credit Ratings Under the 2015 Amendments32-53
      • [C] : Portfolio Diversification32-55
        • [C][1] : Issuer Diversification32-56
          • [C][1][a] : General Diversification Requirements32-56
            • [A][1][a][i] : Taxable and National Funds32-56
            • [A][1][a][ii] : Single State Funds32-58
          • [C][1][b] : Diversification Requirements for Second Tier Securities32-58
          • [C][1][c] : Guidelines for Calculating Issuer Diversification32-59
            • [C][1][c][i] : Repurchase Agreements32-59
            • [C][1][c][ii] : Refunded Securities and Conduit Securities32-60
            • [C][1][c][iii] : Asset-Backed Securities32-61
            • [C][1][c][iv] : Shares of Money Market Funds32-62
            • [C][1][c][v] : Treatment of Certain Affiliated Entities32-63
        • [C][2] : Demand Feature and Guarantee Diversification32-64
          • [C][2][a] : Diversification Requirements for Demand Features and Guarantees32-64
          • [C][2][b] : Guidelines for Calculating Demand Feature and Guarantee Diversification32-66
      • [D] : Portfolio Liquidity32-67
        • [D][1] : Background32-67
        • [D][2] : Portfolio Liquidity Requirements32-69
          • [D][2][a] : General Liquidity Requirement/Know Your Customer Procedures32-69
          • [D][2][b] : Limitation on the Acquisition of Illiquid Securities32-71
          • [D][2][c] : Minimum Daily and Weekly Liquidity Requirements32-71
    • § 32:3.6 : Downgrades and Defaults of Portfolio Securities32-73
      • [A] : Downgrades32-73
      • [B] : Downgraded Securities Subject to Demand Features32-73
      • [C] : Defaults and Other Events Requiring Disposition32-74
      • [D] : Responding to Issues in Less Liquid Markets32-75
      • [E] : Notice to the SEC—Form N-CR32-79
    • § 32:3.7 : Disclosure of Portfolio Information and Other Fund Information on Public Website32-82
    • § 32:3.8 : Recordkeeping32-85
    • § 32:3.9 : Delegation of Board Responsibilities32-87
  • § 32:4 : Affiliated Buyouts of Fund Portfolio Securities32-88
  • § 32:5 : Industry Concentration32-90
  • § 32:6 : Disclosure and Advertising Standards32-91
    • § 32:6.1 : Disclosure32-91
      • [A] : Form N-1A32-91
      • [B] : Form N-MFP32-96
    • § 32:6.2 : Advertising32-101
  • § 32:7 : Suspension of Redemptions32-104
  • § 32:8 : Processing of Purchases and Redemptions32-105
  • § 32:9 : Conclusion32-106
Chapter 33: Closed-End Investment Companies; and Appendix 33A
  • § 33:1 : Introduction33-2
  • § 33:2 : What Is a Closed-End Investment Company?33-3
  • § 33:3 : Reasons for Relative Unpopularity of Closed-End Companies33-7
    • § 33:3.1 : High-Cost Exit Strategies for Investors33-8
    • § 33:3.2 : The Discount Phenomenon33-8
  • § 33:4 : Reasons for Choosing to Operate as a Closed-End Company33-12
  • § 33:5 : Regulation of the Offer and Sale of Closed-End Company Shares33-13
  • § 33:6 : Financing Distribution Costs of Closed-End Companies33-16
  • § 33:7 : Registration Procedures for Closed-End Companies33-17
  • § 33:8 : Periodic Reporting Under the Investment Company Act33-17
  • § 33:9 : Regulation of Share Repurchases by Closed-End Companies33-18
    • § 33:9.1 : Requirements of the Exchange Act33-18
    • § 33:9.2 : Repurchases in the Course of a Distribution: Rule 102 of Regulation M33-19
    • § 33:9.3 : Requirements of the Investment Company Act33-20
      • [A] : Rule 23c-133-20
      • [B] : Rule 23c-233-21
      • [C] : Rule 23c-333-21
  • § 33:10 : Regulation of the Operations of the Closed-End Company33-24
    • § 33:10.1 : The Capital Structure of Closed-End Companies33-24
    • § 33:10.2 : Restrictions on Investments by Closed-End Companies33-26
  • Appendix 33A : Form N-2: Registration Statement for Closed-End Management Investment CompaniesApp. 33A-1
Chapter 34: An Overview of the Formation and Operation of Exchange-Traded Products
  • § 34:1 : Introduction34-2
  • § 34:2 : Product Description34-3
    • § 34:2.1 : Exchange-Traded Funds (ETFs)34-3
    • § 34:2.2 : Exchange-Traded Vehicles (ETVs)34-4
    • § 34:2.3 : Exchange-Traded Notes (ETNs)34-4
  • § 34:3 : ETP Registration34-5
    • § 34:3.1 : Registration of Securities34-5
      • [A] : ETFs34-5
      • [B] : ETVs and ETNs34-6
    • § 34:3.2 : Entity Registration34-6
    • § 34:3.3 : CFTC Registration34-6
  • § 34:4 : Tax Considerations34-7
    • § 34:4.1 : ETFs34-7
    • § 34:4.2 : ETVs34-7
    • § 34:4.3 : ETNs34-7
  • § 34:5 : Exemptive Relief34-7
    • § 34:5.1 : ETFs34-8
    • § 34:5.2 : ETVs and ETNs34-9
  • § 34:6 : Listing on an Exchange34-9
  • § 34:7 : Governance Standards34-10
    • § 34:7.1 : ETFs34-10
    • § 34:7.2 : ETVs and ETNs34-11
  • § 34:8 : Operational Issues34-11
    • § 34:8.1 : Capital34-11
      • [A] : ETFs34-11
      • [B] : ETVs and ETNs34-12
    • § 34:8.2 : Marketing34-12
    • § 34:8.3 : Create/Redeem Process34-13
      • [A] : ETFs and ETVs34-13
      • [B] : ETNs34-13
    • § 34:8.4 : Calculation of Net Asset Value34-13
      • [A] : ETFs34-13
      • [B] : ETVs34-14
      • [C] : ETNs34-14
    • § 34:8.5 : Fees34-15
      • [A] : ETFs34-15
      • [B] : ETVs34-15
      • [C] : ETNs34-15
  • § 34:9 : Domicile34-16
    • § 34:9.1 : ETFs34-16
    • § 34:9.2 : ETVs and ETNs34-16
  • § 34:10 : Conclusion34-16
Chapter 35: Exchange-Traded Funds
  • § 35:1 : Background35-2
  • § 35:2 : Organizational Issues35-3
    • § 35:2.1 : Form of Organization35-3
    • § 35:2.2 : Mechanics of Purchases and Sales35-4
      • [A] : Exchange Transactions35-4
      • [B] : Transactions35-4
        • [B][1] : Purchases35-4
        • [B][2] : Redemptions35-5
    • § 35:2.3 : The Arbitrage Process35-6
    • § 35:2.4 : Tax Matters35-6
      • [A] : ETFs as Compared to Mutual Funds35-6
      • [B] : Tax Implications for Purchaser35-6
      • [C] : Tax Implications for Redeemer35-6
  • § 35:3 : Investment Company Act Issues35-7
    • § 35:3.1 : Registration as an Open-End Company or a Unit Investment Trust35-7
    • § 35:3.2 : Section 17(a)35-8
    • § 35:3.3 : Section 1835-8
    • § 35:3.4 : Section 22(d) and Rule 22c-135-9
    • § 35:3.5 : Section 22(e)35-10
    • § 35:3.6 : Section 2635-10
  • § 35:4 : Exchange Act Issues35-11
    • § 35:4.1 : Regulation M35-11
    • § 35:4.2 : Tender Offers35-12
    • § 35:4.3 : Margin35-12
    • § 35:4.4 : Disclosure Requirements35-13
      • [A] : Confirmations35-13
      • [B] : Broker Relationship35-13
      • [C] : Advance Notice of Corporate Actions35-14
    • § 35:4.5 : Generic No-Action Relief35-14
    • § 35:4.6 : Sections 13(d) and 16(a)35-15
    • § 35:4.7 : NASD Conduct Rules35-15
  • § 35:5 : New Products and Recent Developments35-16
    • § 35:5.1 : Actively Managed ETFs35-16
    • § 35:5.2 : ETFs on Alternative Asset Classes35-17
    • § 35:5.3 : Investment in ETFs by Fund of Funds35-17
    • § 35:5.4 : Investment in ETFs by Retirement Plans35-18
    • § 35:5.5 : Proposed Rule 6c-1135-18
Chapter 36: Commodity Pool Operator Status and Regulation
  • § 36:1 : Introduction36-3
  • § 36:2 : Bifurcated Regulatory System36-5
  • § 36:3 : Commodity Pool Operator Definition36-9
    • § 36:3.1 : Overview36-9
    • § 36:3.2 : Commodity Pool–CPO Structure36-10
    • § 36:3.3 : Commodity Interests36-10
      • [A] : Futures36-11
      • [B] : Commodity Options36-11
      • [C] : Swaps36-11
        • [C][1] : Overview36-11
        • [C][2] : Foreign Exchange Swaps and Forwards36-13
      • [D] : Retail Forex36-15
      • [E] : Leverage Contracts36-15
      • [F] : Commodity Pools36-16
    • § 36:3.4 : Commodity Pool Definition36-16
    • § 36:3.5 : CPO Definition “Engaged in a Business” Element36-18
    • § 36:3.6 : CPO Activities—Solicitation, Acceptance, or Receipt of Assets from Others36-19
  • § 36:4 : Exclusions and Exemptions36-23
    • § 36:4.1 : Overview36-23
    • § 36:4.2 : CFTC Rule 4.5—CFTC Exclusion from the CPO Definition36-23
      • [A] : Overview36-23
      • [B] : Eligible Operators and Qualifying Entities36-24
      • [C] : Registered Investment Companies36-25
        • [C][1] : Overview36-25
        • [C][2] : Bona Fide Hedging36-26
        • [C][3] : De Minimis Trading Restrictions36-28
          • [C][3][a] : Overview36-28
          • [C][3][b] : 5% Initial Margin Test36-29
          • [C][3][c] : 100% Net Notional Test36-29
          • [C][3][d] : Registered Funds-of-Funds36-31
          • [C][3][e] : Registered Funds with Wholly Owned Commodity Subsidiaries36-33
        • [C][4] : Marketing Restriction36-34
      • [D] : Other Rule 4.5 Requirements36-36
        • [D][1] : Disclosure to Pool Participants36-36
        • [D][2] : Notice Filings36-36
        • [D][3] : Special Calls36-37
      • [E] : Combining Reliance on Rule 4.5 with Reliance on Rule 4.13 or with Registration36-37
    • § 36:4.3 : CFTC Exemptions from CPO Registration36-37
      • [A] : Rule 4.13(a)(3) and Rescinded Rule 4.13(a)(4)36-37
      • [B] : Offshore Fund Exemptions36-39
  • § 36:5 : CPO Regulation36-40
    • § 36:5.1 : Overview36-40
    • § 36:5.2 : CFTC Requirements36-41
      • [A] : Overview36-41
      • [B] : Regulatory Requirements Applicable to Fully Compliant CPOs36-41
        • [B][1] : Disclosure Document36-41
          • [B][1][a] : Filings and Amendments36-41
          • [B][1][b] : Delivery36-42
          • [B][1][c] : Substantive Disclosure36-43
        • [B][2] : Performance Information Disclosure36-44
        • [B][3] : Reporting36-46
          • [B][3][a] : Overview36-46
          • [B][3][b] : Account Statements36-47
          • [B][3][c] : Annual Reports36-47
            • [B][3][c][i] : Relief from Annual Report Requirements for CFCs36-48
          • [B][3][d] : CFTC Form CPO-PQR and NFA Form PQR36-49
            • [B][3][d][i] : Relief from Form CPO-PQR Requirements for CFCs36-50
        • [B][4] : Recordkeeping36-51
        • [B][5] : Advertising36-52
        • [B][6] : Protection of Fund Assets36-52
      • [C] : Partial Exemptions from CPO Regulation for Registered CPOs of Publicly Offered Funds36-53
        • [C][1] : Overview36-53
        • [C][2] : Rule 4.12(b)—CPOs to Pools with Limited Commodity Interest Trading36-54
        • [C][3] : Rule 4.12(c)(2)—CPOs to Exchange-Traded Pools36-55
        • [C][4] : CFTC Harmonization Rules for Registered CPOs of Registered Investment Companies36-56
          • [C][4][a] : Disclosure Relief36-57
          • [C][4][b] : Additional Disclosure Requirements36-58
          • [C][4][c] : Reporting Relief36-59
          • [C][4][d] : Recordkeeping Relief for Registered Fund CPOs36-60
          • [C][4][e] : Relief Available to All CPOs36-60
          • [C][4][f] : Notice Filings36-61
    • § 36:5.3 : NFA Regulation36-62
      • [A] : Overview36-62
      • [B] : CPO Registration36-62
        • [B][1] : Firm Application36-62
        • [B][2] : Principal and Associated Person Applications36-63
        • [B][3] : Identifying Principals36-64
        • [B][4] : Identifying Associated Persons36-64
      • [C] : CPO Compliance Policies and Procedures36-67
      • [D] : Prohibition from Doing Business with Non-NFA Members36-68
      • [E] : Annual Compliance Review36-69
  • § 36:6 : CTA Status and Regulation36-70
    • § 36:6.1 : Overview36-70
    • § 36:6.2 : CTA Exemptions from Registration36-71
      • [A] : CFTC Rule 4.14(a)(8)—Investment Advisers Not Primarily Engaged in CTA Activities36-71
      • [B] : Statutory CTA Exemptions—Sections 4m(1) and 4m(3)36-72
    • § 36:6.3 : Rule 4.7—Partial Exemption for CTAs to “Qualified Eligible Persons”36-73
      • [A] : Overview36-73
      • [B] : QEP Definition36-73
      • [C] : Disclosure36-75
      • [D] : Recordkeeping36-76
Chapter 37: ERISA Issues for Mutual Fund Advisers
  • § 37:1 : Mutual Funds Under ERISA37-2
  • § 37:2 : Reporting and Disclosure37-4
    • § 37:2.1 : Form 5500, Schedule C37-4
    • § 37:2.2 : Service Provider Disclosures Under ERISA Section 408(b)(2)37-6
    • § 37:2.3 : Participant-Level Disclosure37-7
  • § 37:3 : Prohibited Transactions Under ERISA37-8
  • § 37:4 : Plan Investments in Mutual Funds37-10
    • § 37:4.1 : Potential Prohibited Transactions37-10
  • § 37:5 : Prohibited Transaction Exemptions37-12
    • § 37:5.1 : Statutory Exemption for the Provision of Services Under ERISA Section 408(b)(2)37-12
    • § 37:5.2 : Relevant Prohibited Transaction Exemptions Issued by DOL37-13
      • [A] : Prohibited Transaction Exemption 75-137-13
      • [B] : Prohibited Transaction Exemption 77-337-14
      • [C] : Prohibited Transaction Exemption 77-437-15
      • [D] : Prohibited Transaction Exemption 84-2437-18
      • [E] : Prohibited Transaction Exemption 86-12837-18
  • § 37:6 : “Bundled” Asset Allocation Programs Using Related Mutual Funds37-19
  • § 37:7 : 12b-1 Fees37-21
  • § 37:8 : Participant Education and Investment Advice37-25
  • § 37:9 : Statutory Exemption for Investment Advice37-27
    • § 37:9.1 : General Requirements for Computer Models37-28
    • § 37:9.2 : Authorization, Disclosure, and Other Requirements37-29
    • § 37:9.3 : Relief for Plan Sponsors37-31
Chapter 38: The Sarbanes-Oxley Act
  • § 38:1 : Overview38-3
  • § 38:2 : Investment Companies Affected by the SOA38-3
    • § 38:2.1 : Registered Management Investment Companies38-4
      • [A] : Open-End and Closed-End Companies38-4
      • [B] : Form N-CSR38-5
    • § 38:2.2 : Unit Investment Trusts38-6
  • § 38:3 : Rules That Apply to All Registered Investment Companies38-6
    • § 38:3.1 : Management Certifications38-6
      • [A] : SOA Section 302 Certifications38-6
        • [A][1] : Form N-CSR38-6
        • [A][2] : Form N-Q38-7
        • [A][3] : Effective Date38-8
      • [B] : SOA Section 906 Certifications38-8
    • § 38:3.2 : Disclosure Controls and Procedures38-8
    • § 38:3.3 : Internal Control Over Financial Reporting38-9
    • § 38:3.4 : Audit Committee Financial Expert38-10
      • [A] : Requirements38-10
      • [B] : Definition of Audit Committee Financial Expert38-11
      • [C] : Safe Harbor38-11
    • § 38:3.5 : Code of Ethics38-12
      • [A] : Requirements38-12
      • [B] : Definition of Code of Ethics38-13
      • [C] : Public Availability of Code of Ethics38-13
      • [D] : Amendments and Waiver38-14
    • § 38:3.6 : Auditors38-14
      • [A] : Scope of Rules38-15
        • [A][1] : Definition of Investment Company Complex38-15
        • [A][2] : Definition of Audit Client38-16
        • [A][3] : Summary of Scope of Various Rules38-16
      • [B] : Non-Audit Services38-18
        • [B][1] : Prohibited Services38-19
        • [B][2] : Special Considerations Regarding Tax Services38-20
      • [C] : Audit Committee Pre-Approval of Services Provided by Auditors38-21
        • [C][1] : Pre-Approval Required38-21
        • [C][2] : Alternative Pre-Approval Structure Permissible38-21
      • [D] : Other Independence-Impairing Relationships38-22
        • [D][1] : Financial Relationships38-22
        • [D][2] : Business Relationships38-22
        • [D][3] : Contingent Fees38-22
        • [D][4] : Limited Quality Control Exception38-23
      • [E] : Disclosure Relating to Fees Paid to Accountants and Pre-Approval Policies and Procedures38-23
        • [E][1] : Non-Audit Fees38-23
        • [E][2] : Other Disclosures38-24
      • [F] : Liability38-24
    • § 38:3.7 : Other Safeguards Against Auditor Conflicts38-24
      • [A] : Audit Partner Rotation38-24
        • [A][1] : Lead and Concurring Partners38-25
        • [A][2] : Other Audit Partners on the Audit Engagement Team38-25
      • [B] : Employing Former Audit Professionals38-25
        • [B][1] : One-Year Cooling-Off Period38-25
        • [B][2] : Pre-SOA Employment Prohibitions38-26
      • [C] : Compensation of Audit Partners38-27
      • [D] : Communications with the Audit Committee38-27
        • [D][1] : Required Communications38-27
        • [D][2] : Special Timing Considerations for Investment Companies38-28
      • [E] : Retention of Workpapers38-28
      • [F] : Improper Influence on Conduct of Audits38-29
    • § 38:3.8 : Attorneys38-29
      • [A] : Covered Attorneys—Appearing or Practicing Before the SEC38-30
      • [B] : Up-the-Ladder Reporting38-31
      • [C] : Qualified Legal Compliance Committee38-31
      • [D] : Noisy Withdrawal Proposals38-32
    • § 38:3.9 : Proxy Statement Disclosure Regarding Nominating Committee Functions and Communications Between Security Holders and Board of Directors38-32
  • § 38:4 : Provisions That Apply Only to Listed Investment Companies38-32
    • § 38:4.1 : Accelerated Reporting Under Section 16 of the Exchange Act38-33
    • § 38:4.2 : Audit Committee—Independence and Required Functions38-33
      • [A] : Summary of Required Functions38-33
        • [A][1] : Selection and Oversight38-34
        • [A][2] : Complaint Procedures38-34
        • [A][3] : Authority to Engage Advisers and Access to Adequate Funding38-35
      • [B] : Independence Requirement38-35
      • [C] : Required Disclosures38-36
      • [D] : Compliance38-36
      • [E] : NYSE, Nasdaq, and Amex Audit Committee Rules38-37
    • § 38:4.3 : Increased Review of Periodic Reports38-38
  • § 38:5 : Provisions That Are of Limited Relevance or Do Not Apply to Investment Companies38-38
    • § 38:5.1 : Provisions of Limited Relevance38-38
      • [A] : Disgorgement for Restatements38-38
      • [B] : Temporary Freeze on Bonus and Special Payments38-39
      • [C] : Whistleblower Protection38-39
      • [D] : Benefit Plan Blackouts38-39
    • § 38:5.2 : Provisions That Do Not Apply38-40
Chapter 39: Mutual Fund Anti-Money Laundering Rules
  • § 39:1 : Introduction39-3
    • § 39:1.1 : The Money Laundering Process39-4
    • § 39:1.2 : Use of Mutual Funds in the Money Laundering Process39-5
  • § 39:2 : Criminal Money Laundering Laws39-5
  • § 39:3 : The Bank Secrecy Act (BSA)39-6
  • § 39:4 : Regulations Implemented Under the USA PATRIOT Act39-8
    • § 39:4.1 : Overview39-8
    • § 39:4.2 : Section 352: AML Programs for Mutual Funds39-10
      • [A] : Policies and Procedures39-11
      • [B] : Designation of a Compliance Officer39-12
      • [C] : Ongoing Training39-12
      • [D] : Independent Audit Testing39-13
    • § 39:4.3 : Section 326: Customer Identification for Mutual Funds39-13
      • [A] : Definition of Customer39-13
      • [B] : Definition of Account39-15
      • [C] : Minimum CIP Requirements39-16
        • [C][1] : Collection of Customer Identification Information39-16
        • [C][2] : Verification of Customer Identity39-17
          • [C][2][a] : Documentary Verification39-17
          • [C][2][b] : Non-Documentary Verification39-18
        • [C][3] : Additional Verification for Certain Customers39-18
        • [C][4] : Lack of Verification39-18
      • [D] : Recordkeeping39-19
      • [E] : Reliance on Other Financial Institutions39-19
      • [F] : Notice to Customers39-20
      • [G] : Comparison with Government Lists39-21
    • § 39:4.4 : Section 356: Suspicious Activity Reporting for Mutual Funds39-21
      • [A] : Reporting Requirements39-22
      • [B] : Filing Requirements39-23
      • [C] : Joint Filing of SARs39-24
      • [D] : Contracting Performance of SAR Obligations to Other Entities39-25
      • [E] : Document Retention39-25
      • [F] : Confidentiality and Safe Harbor from Liability39-25
    • § 39:4.5 : Section 314: Special Information Sharing Procedures39-27
      • [A] : Section 314(a): Information Sharing Between Federal Law Enforcement Agencies and Financial Institutions39-27
        • [A][1] : Search Requests39-27
        • [A][2] : Report to FinCEN39-28
        • [A][3] : Designation of Contact Person39-28
        • [A][4] : Use and Security of Information Requests39-28
      • [B] : Section 314(b): Voluntary Information Sharing Among Financial Institutions (31 C.F.R. § 103.110)39-29
        • [B][1] : Safe Harbor from Certain Liability39-29
        • [B][2] : Entities with Which Information May Be Shared39-29
        • [B][3] : Notice, Verification, and Use and Security of Information Requirements39-30
        • [B][4] : Information Sharing Between Financial Institutions and the Federal Government39-31
    • § 39:4.6 : Section 312: Due Diligence Requirements for Foreign Correspondent and Private Banking Accounts39-31
      • [A] : Due Diligence Programs for Correspondent Accounts39-32
        • [A][1] : Special Due Diligence for Correspondent Accounts of Foreign Financial Institutions39-32
        • [A][2] : Enhanced Due Diligence for Correspondent Accounts of Certain Non-U.S. Banks39-33
        • [A][3] : Failure of Due Diligence39-35
      • [B] : Due Diligence for Private Banking Accounts39-35
        • [B][1] : Special Due Diligence for Private Banking Accounts of Non-U.S. Persons39-35
        • [B][2] : Enhanced Due Diligence for Private Banking Accounts of Senior Foreign Political Figures39-36
        • [B][3] : Failure of Due Diligence39-36
    • § 39:4.7 : Section 311: Special Measures39-37
  • § 39:5 : OFAC Sanctions Regimes39-38
    • § 39:5.1 : Specially Designated Nationals (SDNs)39-38
    • § 39:5.2 : Country Sanctions Programs39-38
    • § 39:5.3 : OFAC Compliance Programs and Compliance Guidance39-39
      • [A] : 2004 Guidance39-39
      • [B] : 2008 Guidance39-40
        • [B][1] : Screening Focus39-40
        • [B][2] : Identity Verification39-40
        • [B][3] : Risk Factors39-40
        • [B][4] : Organizational Focus39-41
Chapter 40: Treasury and Related Reporting
  • § 40:1 : Introduction40-3
  • § 40:2 : TIC Forms40-5
    • § 40:2.1 : Form SLT40-5
      • [A] : Reporting Entities40-6
      • [B] : Reporting Threshold and Types of Instruments Reported40-7
      • [C] : Exclusions40-8
        • [C][1] : Direct Investment40-8
        • [C][2] : Custodians40-9
      • [D] : Additional Filing Considerations40-10
      • [E] : Disclosures40-11
      • [F] : Examples40-12
        • [F][1] : Example 140-12
        • [F][2] : Example 2A40-13
        • [F][3] : Example 2B40-13
        • [F][4] : Example 340-13
    • § 40:2.2 : Form S40-14
      • [A] : Reporting Entities40-14
      • [B] : Reporting Threshold and Types of Instruments Reported40-14
      • [C] : Exclusions40-15
        • [C][1] : Direct Investment40-15
        • [C][2] : Instruments40-16
        • [C][3] : Broker-Dealers40-16
      • [D] : Additional Filing Considerations40-16
      • [E] : Disclosures40-17
      • [F] : Examples40-17
        • [F][1] : Example 140-17
        • [F][2] : Example 240-18
    • § 40:2.3 : Forms CQ-1 and CQ-240-18
    • [A] : Form CQ-140-18
      • [A][1] : Reporting Entities40-18
      • [A][2] : Reporting Threshold and Reportable Liabilities and Claims40-19
      • [A][3] : Exclusions40-19
    • [B] : Form CQ-240-19
      • [B][1] : Reporting Entities40-20
      • [B][2] : Reporting Threshold and Reportable Liabilities and Claims40-20
      • [B][3] : Exclusions40-20
    • § 40:2.4 : TIC Form B Reports40-20
      • [A] : Form BC40-21
        • [A][1] : Reportable Claims40-21
        • [A][2] : Exclusions40-22
      • [B] : Form BL-140-22
        • [B][1] : Reportable Liabilities40-23
        • [B][2] : Examples40-23
        • [B][3] : Exclusions40-23
      • [C] : Form BL-240-24
        • [C][1] : Reportable Liabilities40-24
        • [C][2] : Specific Exclusions40-25
      • [D] : Form BQ-140-25
        • [D][1] : Reportable Claims40-25
        • [D][2] : Specific Exclusions40-26
      • [E] : Form BQ-240-27
      • [F] : Form BQ-340-27
    • § 40:2.5 : Form D40-27
      • [A] : Reporting Entities40-28
      • [B] : Reporting Threshold and Types of Instruments Reported40-28
      • [C] : Exclusions40-29
      • [D] : Disclosures40-30
      • [E] : Examples40-31
        • [E][1] : Example 140-31
        • [E][2] : Example 240-31
    • § 40:2.6 : Forms SHL and SHLA40-32
      • [A] : Form SHL40-32
        • [A][1] : Reporting Entities40-32
        • [A][2] : Reporting Threshold and Types of Instruments Reported40-33
        • [A][3] : Exclusions40-34
        • [A][4] : Disclosures40-35
      • [B] : Form SHLA40-35
    • § 40:2.7 : Forms SHC and SHCA40-35
      • [A] : Form SHC40-35
        • [A][1] : Reporting Entities40-36
        • [A][2] : Reporting Thresholds and Types of Instruments Reported40-36
        • [A][3] : Exclusions40-37
          • [A][3][a] : Direct Investment40-37
          • [A][3][b] : Instruments40-37
        • [A][4] : Disclosures40-37
      • [B] : Form SHCA40-37
  • § 40:3 : Treasury Foreign Currency (TFC) Forms40-39
    • § 40:3.1 : Form FC-140-39
    • § 40:3.2 : Form FC-240-40
    • § 40:3.3 : Form FC-340-40
  • § 40:4 : BEA Forms40-41
    • § 40:4.1 : U.S. Direct Investment Abroad40-41
      • [A] : Form BE-57740-41
      • [B] : Form BE-1140-43
        • [B][1] : Form BE-11A40-43
        • [B][2] : Form BE-11B40-44
        • [B][3] : Form BE-11C40-44
        • [B][4] : Form BE-11D40-44
        • [B][5] : Form BE-11E40-45
        • [B][6] : Form BE-11 Claim for Not Filing40-45
      • [C] : Form BE-1040-45
    • § 40:4.2 : Foreign Direct Investment in the United States40-46
      • [A] : Form BE-60540-46
      • [B] : Form BE-1540-48
        • [B][1] : Form BE-15A40-48
        • [B][2] : Form BE-15B40-48
        • [B][3] : Form BE-15 (EZ)40-49
        • [B][4] : Form BE-15 Claim for Exemption40-49
      • [C] : Form BE-1240-49
        • [C][1] : Form BE-12A40-49
        • [C][2] : Form BE-12B40-50
        • [C][3] : Form BE-12C40-50
        • [C][4] : Form BE-12 Claim for Not Filing40-50
    • § 40:4.3 : U.S. International Services Transactions40-51
      • [A] : Form BE-18540-51
      • [B] : Form BE-18040-52
  • § 40:5 : Conclusion40-53
Chapter 41: Fund Reorganizations; and Appendices 41A-41B
  • § 41:1 : Introduction to Fund Reorganizations41-2
  • § 41:2 : Reasons for Fund Mergers41-3
  • § 41:3 : Fund Merger Structure and Regulation41-5
    • § 41:3.1 : Structure41-5
    • § 41:3.2 : Regulation41-5
      • [A] : Investment Companies41-5
      • [B] : Public Offerings41-6
      • [C] : Private Registered Acquiring Funds41-9
      • [D] : Federal Income Tax41-9
      • [E] : State Law41-11
  • § 41:4 : Regulatory Filings41-11
    • § 41:4.1 : Form N-1441-11
    • § 41:4.2 : Proxy Statement—Private Registered Fund Mergers41-12
    • § 41:4.3 : Other Filings and Notices41-12
  • § 41:5 : Particular Merger Scenarios41-13
    • § 41:5.1 : Multiple Class Acquired Funds41-13
    • § 41:5.2 : Overall Fees and Expenses41-14
    • § 41:5.3 : Conflicts of Interest41-14
  • § 41:6 : Participants in the Reorganization Process41-15
    • § 41:6.1 : Fund Investment Advisers41-15
    • § 41:6.2 : Acquiring Fund Portfolio Managers41-15
    • § 41:6.3 : Fund Counsel41-15
    • § 41:6.4 : Tax Counsel41-17
    • § 41:6.5 : Independent Auditors41-17
    • § 41:6.6 : Fund Accounting/Administration41-17
    • § 41:6.7 : Transfer Agent41-17
  • § 41:7 : Merger Closing41-18
  • § 41:8 : Practical Considerations41-18
    • § 41:8.1 : Considering the Merger41-18
    • § 41:8.2 : Board Presentation and SEC Filings41-19
    • § 41:8.3 : Proxy Solicitation and Special Shareholder Meeting41-21
    • § 41:8.4 : Closing41-21
    • § 41:8.5 : Post-Closing41-22
  • § 41:9 : Summary41-22
  • Appendix 41A : Statutory and Regulatory Provisions Relevant to Fund MergersApp. 41A-1
  • Appendix 41B : Sample TimelineApp. 41B-1
Chapter 42: Mutual Fund Use of Sub-Advisers
  • § 42:1 : Introduction42-2
    • § 42:1.1 : What Is a Sub-Adviser?42-2
    • § 42:1.2 : Why Would a Mutual Fund Use a Sub-Adviser?42-3
  • § 42:2 : Requirements for Hiring a Sub-Adviser42-4
    • § 42:2.1 : Legal Basis for Hiring a Sub-Adviser: The Investment Company Act42-4
      • [A] : Exemption from Section 15 Requirements: Manager of Managers Orders42-5
      • [B] : Exception to Section 15 Requirements: Rule 15a-442-8
    • § 42:2.2 : Affiliated Versus Unaffiliated Sub-Advisers42-9
  • § 42:3 : Contractual Issues Related to the Use of Sub-Advisers42-11
    • § 42:3.1 : Sub-Advisory Agreement Considerations42-11
      • [A] : Standards of Liability and Indemnification42-11
      • [B] : Sub-Advisory Fee Matters42-12
      • [C] : Other Sub-Advisory Relationship Matters42-14
    • § 42:3.2 : Duties and Obligations of Adviser and Sub-Adviser42-14
      • [A] : Oversight and Termination of Sub-Advisers42-14
        • [A][1] : Termination Requirements42-14
        • [A][2] : Oversight of Valuation42-15
        • [A][3] : Derivative Transactions and ISDAs42-15
      • [B] : Excessive Fee Actions Under Section 36(b)42-15
  • § 42:4 : Investment Company Act Issues and Exceptions42-17
    • § 42:4.1 : Section 12(d) and Rule 12d3-142-17
    • § 42:4.2 : Section 17(a) and Rule 17a-1042-18
    • § 42:4.3 : Section 10(f) and Rule 10f-342-20
  • § 42:5 : Compliance42-21
    • § 42:5.1 : Oversight42-21
      • [A] : Considerations in Overseeing Sub-Adviser Compliance42-21
      • [B] : Enhanced Oversight Burden on Chief Compliance Officer42-21
    • § 42:5.2 : Sub-Adviser Reporting Requirements42-22
      • [A] : Code of Ethics42-22
      • [B] : Compliance Policies and Procedures42-23
      • [C] : Quarterly Compliance Transactions42-23
    • § 42:5.3 : Increased Complexities for Funds with Multiple Sub-Advisers42-24
  • § 42:6 : Board Oversight42-25
    • § 42:6.1 : Oversight of the Selection Process of the Sub-Adviser42-25
    • § 42:6.2 : Approving the Sub-Advisory Contract42-25
      • [A] : Board Considerations42-25
      • [B] : Disclosure Requirements42-26
    • § 42:6.3 : Timing of Termination of Non-Performing Sub-Advisers42-27
    • § 42:6.4 : Compliance Oversight42-27
Chapter 43: Litigation Under the Investment Company Act of 1940; and Appendix 43A
  • § 43:1 : Introduction: Early Advisory Fee Litigation43-2
    • § 43:1.1 : The Rise of Mutual Funds and the Limits of the Investment Company Act43-2
    • § 43:1.2 : Early Excessive Fee Litigation43-5
    • § 43:1.3 : SEC Proposals for Reform43-7
  • § 43:2 : Section 36(b) of the Investment Company Act43-9
    • § 43:2.1 : Excessive Fee Litigation Under Section 36(b)43-9
      • [A] : The First Cases43-10
      • [B] : Gartenberg and Investment Advisory Fees43-11
        • [B][1] : Nature and Quality of the Services Provided43-12
        • [B][2] : Profitability of the Fund to the Adviser/Cost of Providing Services43-13
        • [B][3] : Fall-Out Benefits43-14
        • [B][4] : Economies of Scale43-15
        • [B][5] : Comparative Fee Structure43-16
        • [B][6] : Independence and Conscientiousness of the Trustees43-17
        • [B][7] : Challenges to Director Independence43-18
      • [C] : Beyond Gartenberg: The Supreme Court Review of Section 36(b) in Jones v. Harris43-21
      • [D] : Sub-Adviser Fees and Section 36(b)43-25
        • [D][1] : Retention of Sub-Advisers43-26
        • [D][2] : Comparisons Between Proprietary Fund Fees and Sub-Adviser Fees43-27
      • [E] : Beyond Jones: Does Section 36(b) Permit General Fiduciary Duty Claims?43-28
    • § 43:2.2 : The Scope of Section 36(b)43-32
      • [A] : To Which Fees Does It Apply?43-32
        • [A][1] : Payments for Advisory and Non-Advisory Services43-32
        • [A][2] : Rule 12b-1 and Distribution Fees43-33
        • [A][3] : Transfer Agent Fees43-34
        • [A][4] : Other Fees43-34
      • [B] : Section 36(b) Procedural Considerations43-35
        • [B][1] : Standard for Pleading43-35
        • [B][2] : No Prior Demand Required43-39
        • [B][3] : Direct Versus Derivative and Class Action Issues43-40
        • [B][4] : Standing43-41
        • [B][5] : Proper Defendants43-43
        • [B][6] : One-Year Look-Back43-44
        • [B][7] : Limits on Damages43-46
        • [B][8] : Preemption of State Law43-46
        • [B][9] : No Right to Jury Trial43-47
  • § 43:3 : Private Litigation Under Other Sections of the Investment Company Act43-48
  • Appendix 43A : Section 36(b) of the Investment Company ActApp. 43A-1
Chapter 44: The Mutual Fund Market Timing and Late Trading Scandal of 2003; and Appendices 44A-44E
  • § 44:1 : Introduction44-4
  • § 44:2 : Background—What Are the Abuses?44-9
    • § 44:2.1 : Late Trading44-9
    • § 44:2.2 : Market Timing44-13
    • § 44:2.3 : Revenue Sharing and Directed Brokerage44-18
    • § 44:2.4 : Other Abuses44-21
  • § 44:3 : Regulatory Response44-21
    • § 44:3.1 : Corporate Governance Changes44-21
      • [A] : Overview44-21
      • [B] : Amendments: In General44-28
      • [C] : Amendments: Supermajority of Independent Directors44-29
      • [D] : Amendments: Independent Board Chair44-30
      • [E] : Amendments: Annual Self-Assessment44-31
      • [F] : Amendments: Quarterly Executive Sessions44-32
      • [G] : Amendments: Authorization to Hire Independent Director Staff44-33
      • [H] : Amendments: RecordKeeping Requirements44-33
      • [I] : Best Practices Proposals44-33
    • § 44:3.2 : Requirement for Compliance Programs for Investment Advisers and Investment Companies44-34
      • [A] : Introduction44-34
      • [B] : New Compliance Program Rules44-35
      • [C] : Scope of the Compliance Program44-35
        • [C][1] : Investment Advisers44-37
        • [C][2] : Investment Companies44-37
      • [D] : Approval Requirements of Compliance Program44-41
      • [E] : Annual Review44-43
      • [F] : Duties of CCO44-43
        • [F][1] : Designation and Qualifications of CCO44-43
        • [F][2] : CCO Responsibilities44-44
      • [G] : Protection of CCO from Undue Influence44-46
      • [H] : Unit Investment Trusts44-47
      • [I] : RecordKeeping44-47
    • § 44:3.3 : Investment Adviser Codes of Ethics44-48
      • [A] : Standards of Conduct44-48
      • [B] : Protection of Material Nonpublic Information44-48
      • [C] : Personal Securities Trading44-49
      • [D] : Other Requirements44-51
      • [E] : Effective Date44-52
    • § 44:3.4 : Mutual Fund Redemption Fees44-52
      • [A] : Redemption Fees44-53
      • [B] : Shareholder Information44-53
        • [B][1] : Fund Responsibilities44-53
        • [B][2] : Financial Intermediaries44-54
      • [C] : Exceptions44-56
      • [D] : Compliance Date44-57
    • § 44:3.5 : Proposed Amendments to the “Forward-Pricing” Rule: The 4:00 P.M. “Hard Close”44-57
      • [A] : Purchase and Sale Orders; Exchanges44-58
      • [B] : Exceptions44-58
      • [C] : Status44-59
    • § 44:3.6 : Disclosure of Market Timing Policies, Fair Value Pricing Policies, and Selective Disclosure of Portfolio Holdings44-59
      • [A] : Disclosure Relating to Frequent Purchases and Redemptions of Fund Shares44-60
      • [B] : Disclosure of Circumstances Under Which Funds Will Use Fair Value Pricing and the Effects of Such Use44-62
      • [C] : Selective Disclosure of Portfolio Holdings44-62
      • [D] : Compliance Date44-64
    • § 44:3.7 : Prohibition on Use of Brokerage Commissions to Finance Distribution44-65
      • [A] : Reasons for the Amendments44-65
      • [B] : Rule 12b-1 Amendments44-66
      • [C] : Compliance Date44-67
    • § 44:3.8 : Confirmation Requirements and Point of Sale Disclosure Requirements44-67
      • [A] : Confirmation of Transactions in Mutual Fund Shares, UIT Interests, and Municipal Fund Securities Used for Education Savings44-68
        • [A][1] : No Safe Harbor from Antifraud Provisions or Other Legal Requirements44-68
        • [A][2] : Transactions in Covered Securities44-69
        • [A][3] : Schedule 15C and the Form of Disclosure44-69
        • [A][4] : General Disclosure Requirements44-70
        • [A][5] : Additional Disclosures for Purchases—Cost Disclosure44-71
        • [A][6] : Additional Disclosures for Purchases—Sales Fee Disclosure44-72
        • [A][7] : Additional Disclosures for Purchases—Revenue Sharing and Portfolio Brokerage Disclosure44-72
        • [A][8] : Additional Disclosures for Purchases—Differential Compensation Disclosure44-73
        • [A][9] : Provisions Not Included in General and Purchase-Specific Requirements44-74
        • [A][10] : Periodic Disclosure Alternative44-74
        • [A][11] : Exemptive Provision44-75
        • [A][12] : Comparison Range Disclosure44-75
        • [A][13] : Disclosures About Transactions Effected by Multiple Firms44-75
        • [A][14] : Amendments to Rule 10b-1044-76
      • [B] : Proposed Rule 15c2-3: Point of Sale Disclosure for Purchase Transactions in Open-End Management Investment Company Shares, UIT Interests, and Municipal Fund Securities Used for Education Savings44-76
        • [B][1] : Securities Transactions and Persons Covered44-77
        • [B][2] : Timing of Disclosure44-77
        • [B][3] : Information Requirements44-77
        • [B][4] : Customers’ Right to Terminate Orders Made Prior to Disclosure44-78
        • [B][5] : Manner of Disclosure44-78
        • [B][6] : RecordKeeping44-80
        • [B][7] : Exceptions44-80
      • [C] : Supplemental Internet-Based Disclosure44-81
      • [D] : Prospectus Disclosure44-82
    • § 44:3.9 : Disclosure of Breakpoint Discounts44-83
    • § 44:3.10 : Disclosure Relating to Approval of Investment Advisory Contracts44-84
      • [A] : Disclosure Requirement in Shareholder Reports44-84
      • [B] : Disclosure Enhancements44-85
      • [C] : Evaluating Factors44-86
      • [D] : Compliance Date44-86
    • § 44:3.11 : Disclosure Regarding Portfolio Managers44-86
      • [A] : Identification of Portfolio Management Team Members44-87
      • [B] : Disclosure of Other Accounts Managed and Potential Conflicts of Interest44-87
      • [C] : Disclosure of Portfolio Manager Compensation Structure44-88
      • [D] : Disclosure of Securities Ownership of Portfolio Managers44-89
      • [E] : Date of Disclosure44-89
      • [F] : Index Funds Are Covered44-89
      • [G] : Disclosure of Availability of Information44-90
      • [H] : Amendment of Form N-CSR44-90
      • [I] : Compliance Date44-90
    • § 44:3.12 : Registration of Certain Hedge Fund Advisers44-90
      • [A] : Goldstein v. Securities and Exchange Commission44-91
      • [B] : Implications of Goldstein44-93
      • [C] : SEC Response to Goldstein—Antifraud Rule and Proposed Accredited Natural Persons Rules44-95
        • [C][1] : Antifraud Rule Under the Investment Advisers Act44-95
        • [C][2] : Proposed Accredited Natural Persons Rules Under the Securities Act44-97
  • § 44:4 : Legislative Proposals44-99
  • Appendix 44A : List of Market Timing and Late Trading CasesApp. 44A-1
  • Appendix 44B : Summary of H.R. 2420App. 44B-1
  • Appendix 44C : Format of Confirmation DisclosuresApp. 44C-1
  • Appendix 44D : Format of Point of Sale DisclosuresApp. 44D-1
  • Appendix 44E : Format of Internet-Based DisclosureApp. 44E-1
Appendix A: Investment Company Act of 1940
Appendix B: Title 17: Commodity and Securities Exchanges
  Table of Authorities
  Index

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