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TreatiseTreatise

Mutual Funds and Exchange Traded Funds Regulation (3rd Edition)
 by Clifford E. Kirsch
 
 Copyright: 2011-2012
 Last Updated: October 2012

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Product Details

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  • ISBN Number: 9781402416910
  • Page Count: 1980
  • Number of Volumes: 2
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  • The purchase of PLI titles may include Basic Upkeep Service, whereby
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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.

  Preface
Chapter 1: An Introduction to Mutual Funds; And Chapter 1A: A History and Overview of Mutual Fund Regulation Bibb L. Strench ~ Seward & Kissel LLP
Mary Joan Hoene ~ Carter Ledyard & Milburn LLP
  • § 1:1 : A Brief History of the Mutual Fund Industry1-2
  • § 1:2 : The Players1-10
    • § 1:2.1 : Mutual Funds1-10
    • § 1:2.2 : Investment Adviser1-11
    • § 1:2.3 : Board of Directors1-12
    • § 1:2.4 : Administrator1-13
    • § 1:2.5 : Underwriter or Distributor1-13
    • § 1:2.6 : Custodian1-13
    • § 1:2.7 : Transfer Agent1-13
    • § 1:2.8 : Independent Auditors1-13
    • § 1:2.9 : Legal Counsel1-14
    • § 1:2.10 : Chief Compliance Officer1-14
    • § 1:2.11 : Shareholders1-14
  • § 1:3 : Organizational Structure1-14
    • § 1:3.1 : The Mutual Fund Complex1-14
    • § 1:3.2 : The Adviser and the Board1-15
    • § 1:3.3 : The Fund’s Distribution Structure1-16
    • § 1:3.4 : Portfolio Management Structure1-17
    • § 1:3.5 : Marketing Structures1-18
  • § 1:4 : Regulatory Framework1-20
    • § 1:4.1 : Overview of the Investment Company Act1-20
    • § 1:4.2 : Restrictions on Advisory Services1-21
      • [A] : Prospectus Disclosure1-21
      • [B] : Controls Over the Advisory Contract1-22
      • [C] : Corporate Structure1-22
      • [D] : Private Right of Action1-23
      • [E] : Affiliated Transactions1-23
      • [F] : Restrictions on Investments1-24
    • § 1:4.3 : Restrictions on Capital Structure1-25
      • [A] : Prohibition on Debt Issuance1-25
      • [B] : Issuance of Redeemable Shares1-25
      • [C] : Pricing of Shares1-25
    • § 1:4.4 : Restrictions on Sales of Fund Shares1-26
      • [A] : Limits on Sales Load1-26
      • [B] : Financing Distribution Through Fund Assets1-26
      • [C] : Advertising Regulations1-26
    • § 1:4.5 : Administration of the Investment Company Act: The Role of the SEC1-28
      • [A] : SEC Inspections1-28
      • [B] : Enforcement1-29
  • § 1:5 : Application of the Advisers Act1-29
  • § 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 2: Fund Formation Sarah E. Cogan ~ Simpson Thacher & Bartlett LLP
Celine Hwang ~ Simpson Thacher & Bartlett LLP
  • § 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 Names2-11
    • § 2:3.1 : 80% Test2-11
    • § 2:3.2 : Country, International and Global Funds2-12
    • § 2:3.3 : Use of “Guaranteed” or “Insured”2-12
    • § 2:3.4 : Use of “Tax-Exempt” or “Tax-Free”2-12
    • § 2:3.5 : Maturity of Trust Portfolio2-13
    • § 2:3.6 : Balanced Funds2-13
    • § 2:3.7 : Duration of Fund Portfolio2-14
    • § 2:3.8 : Money Market Funds2-14
    • § 2:3.9 : Other2-14
  • § 2:4 : Necessary Agreements2-14
    • § 2:4.1 : Seed Money2-14
    • § 2:4.2 : Advisory Agreement2-15
    • § 2:4.3 : Underwriting or Distribution Agreements2-16
    • § 2:4.4 : Distribution-Related Agreements2-17
    • § 2:4.5 : Transfer Agency Agreement2-18
    • § 2:4.6 : Service Contracts with Affiliates2-19
    • § 2:4.7 : Custodial Arrangements2-20
  • § 2:5 : Compliance Policies and Procedures2-21
    • § 2:5.1 : Areas of Concern2-21
    • § 2:5.2 : Procedures2-22
Chapter 3: Capital Structure Audrey C. Talley ~ Drinker Biddle & Reath LLP
Joshua Deringer ~ Drinker Biddle & Reath LLP
James L Love ~ U.S. Global Investors, Inc.
  • § 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 Straddles3-11
      • [C] : Duties of Fund Directors Regarding Leveraged Instruments3-12
    • § 3:3.2 : Application of Senior Security Restrictions to Differences in Shareholder Rights: Series and Classes3-13
      • [A] : Series Funds3-13
      • [B] : Multiple Class Funds3-15
        • [B][1] : Background3-15
        • [B][2] : Rule 18f-3 Exemption3-17
        • [B][3] : Tax Issues for Multiple Class Funds3-18
    • § 3:3.3 : Senior Security Issues Raised with Respect to Distributions3-20
  • § 3:4 : Issuance of Warrants3-21
  • § 3:5 : Redemptions in Kind3-21
  • § 3:6 : Regulatory Structure Applicable to the Capital Structure for Closed-End Funds3-22
Chapter 4: Prospectus Disclosure and Delivery Requirements Michael Glazer ~ Paul Hastings Janofsky & Walker LLP
  • § 4:1 : Federal and State Registration Requirements4-2
    • § 4:1.1 : Registration Under the 1933 and 1940 Acts4-2
    • § 4:1.2 : The Federal Registration Process4-3
      • [A] : Applicable Forms4-3
      • [B] : Automatic Effectiveness—Delaying Amendment4-3
      • [C] : Filing Fees4-3
      • [D] : Staff Review Process4-4
      • [E] : Sales Efforts While Registration Statement Is Pending at SEC4-5
      • [F] : Filing Final Prospectus4-5
    • § 4:1.3 : General Registration Rules and Regulations4-6
    • § 4:1.4 : State Registration Requirements4-7
  • § 4:2 : General Disclosure Requirements4-7
    • § 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 Instructions4-14
      • [A] : Registration Fees4-14
      • [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 Prospectus4-18
    • § 4:3.3 : Investment Objectives4-19
    • § 4:3.4 : Investment Strategies and Risks4-19
    • § 4:3.5 : Performance Information4-23
    • § 4:3.6 : Fee Table4-24
    • § 4:3.7 : Statement of Additional Information4-25
    • § 4:3.8 : Part C4-26
      • [A] : Opinion and Consent of Counsel4-26
      • [B] : Directors, Officers, and Partners of the Fund’s Adviser4-27
      • [C] : XBRL Interactive Data Exhibit4-27
      • [D] : Exhibit Index4-27
      • [E] : Required Signatures4-28
  • § 4:4 : Prospectus Updates4-28
    • § 4:4.1 : Annual Amendment of the Registration Statement4-29
      • [A] : Information to Be Updated4-29
      • [B] : Rule 4854-30
    • § 4:4.2 : Interim Updates4-32
  • § 4:5 : Delivery Requirements4-34
    • § 4:5.1 : Delivery of Preliminary Prospectus4-34
    • § 4:5.2 : Delivery of Final Prospectus and Supplements4-35
      • [A] : Initial Delivery4-35
      • [B] : Summary Prospectus: Accessibility of Statutory Prospectus, SAI, and Shareholder Reports4-36
      • [C] : Summary Prospectus: Delivery of Statutory Prospectus Upon Request4-36
  • § 4:6 : Use of Electronic Media4-37
    • § 4:6.1 : Consent to Electronic Delivery4-38
    • § 4:6.2 : Notice, Access, and Proof of Delivery4-38
    • § 4:6.3 : Hyperlinks4-39
Chapter 5: Shareholder Reports; And Appendix 5A: Practice Pointers: Form N-CSR Michael Glazer ~ Paul Hastings Janofsky & Walker LLP
  • § 5:1 : General Reporting Requirements5-1
  • § 5:2 : Contents of Reports5-2
    • § 5:2.1 : General 1940 Act Requirements5-2
    • § 5:2.2 : Quarterly Report Requirements5-3
    • § 5:2.3 : Semiannual Report Requirements5-3
      • [A] : Financial Information5-3
      • [B] : Portfolio Information5-4
      • [C] : Basis for Approval of Investment Advisory Contract5-4
      • [D] : Expense Example5-5
      • [E] : Proxy Information5-5
      • [F] : XBRL Interactive Data Format5-5
    • § 5:2.4 : Annual Report Requirements5-5
      • [A] : Management Discussion of Performance5-5
      • [B] : Performance Graph5-6
      • [C] : Performance Table5-6
    • § 5:2.5 : Form N-CSR5-7
      • [A] : Officer Certification5-7
      • [B] : Substantive Requirements5-8
  • § 5:3 : Delivery of Reports5-9
    • § 5:3.1 : Householding of Reports5-9
    • § 5:3.2 : Electronic Delivery of Reports5-9
  • Appendix 5A : Practice Pointers: Form N-CSRApp. 5A-1
Chapter 6: Regulation of the Advisory Contract David A Sturms ~ Vedder Price P.C.
Renee Hardt ~ Vedder Price P.C.
  • § 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] : Section 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 Contracts6-34
Chapter 7: Regulation of Advisory Fees David A Sturms ~ Vedder Price P.C.
Renee Hardt ~ Vedder Price P.C.
  • § 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 Scale7-9
      • [C] : Disinterested Directors7-10
  • § 7:3 : Performance Fees7-12
Chapter 8: Restrictions on Investments; And Chapter 8A: Derivatives Activities Audrey C. Talley ~ Drinker Biddle & Reath LLP
Jay G. Baris ~ Morrison & Foerster LLP
Joshua Deringer ~ Drinker Biddle & Reath LLP
James L Love ~ U.S. Global Investors, Inc.
  • § 8:1 : Introduction8-3
  • § 8:2 : Disclosure of and Adherence to Investment Policies8-4
    • § 8:2.1 : Disclosure of Investment Policies8-5
      • [A] : Recital of Policies (Section 8(b)(1))8-5
        • [A][1] : Classifications and Sub-Classifications (Sections 4 and 5)8-6
        • [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)8-19
        • [C][3] : Section 12(d)(1)(G) (Fund of Funds)8-20
        • [C][4] : Section 12(d)(1)(J) (General Exemptive Authority)8-22
        • [C][5] : Fund of Fund Rules 12d1-1, 12d1-2, and 12d1-38-24
          • [C][5][a] : Rule 12d1-1—The Money Market Funds Exemption8-24
          • [C][5][b] : Rule 12d1-1—Conditions8-26
          • [C][5][c] : Rule 12d1-2—Affiliated Funds of Funds8-26
          • [C][5][d] : Rule 12d1-3—Unaffiliated Funds of Funds8-26
          • [C][5][e] : 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
  • § 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 Mari Anne Pisarri ~ Pickard & Djinis LLP
  • § 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 Peter A Ambrosini ~ State Street Global Advisors
Karen B Clark ~ State Street Global Advisors
  • § 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 David M Butowsky ~ Gordon Altman Butowsky Weitzen Shalov
  • § 12:1 : Introduction12-2
  • § 12:2 : Definition of Affiliation12-4
  • § 12:3 : Transactional Prohibitions of Section 17(a)12-10
    • § 12:3.1 : Section 17(a)(1)12-10
    • § 12:3.2 : Section 17(a)(2)12-13
    • § 12:3.3 : Section 17(a)(3)12-13
    • § 12:3.4 : Interaction of Section 17(a)(1), (2), and (3)12-14
    • § 12:3.5 : Portfolio Affiliates12-17
  • § 12:4 : Section 17(a)—Exemptive Provisions12-19
    • § 12:4.1 : Section 17(a)(1)—Statutory Exception12-19
    • § 12:4.2 : Section 17(c)—Exception in the Ordinary Course of Business12-20
    • § 12:4.3 : Rule 17a-4—Exemption of Transactions Pursuant to Certain Contracts12-20
    • § 12:4.4 : Rule 17a-6—Exemption of Transactions with Certain Affiliated Persons12-21
      • [A] : Transactions with Portfolio Affiliates12-22
    • § 12:4.5 : Rule 17a-7—Exemption of Certain Purchase or Sale Transactions Between an Investment Company and Certain Affiliated Persons12-22
    • § 12:4.6 : Rule 17a-8—Mergers of Certain Affiliated Investment Companies12-24
    • § 12:4.7 : Rule 17a-9—Purchase of Certain Securities from a Money Market Fund by an Affiliate or an Affiliate of an Affiliate12-25
    • § 12:4.8 : Rule 17a-10—Subadviser Affiliates12-26
    • § 12:4.9 : Section 17(b)—Exemptive Orders12-26
  • § 12:5 : Section 17(d) and Rule 17d-112-29
    • § 12:5.1 : Bunching12-39
    • § 12:5.2 : Allocation12-42
    • § 12:5.3 : Litigation Issues12-44
    • § 12:5.4 : Closed-End Funds—Expenses of Proxy Contests12-45
    • § 12:5.5 : Affiliated Service Arrangements12-47
  • § 12:6 : Section 17(e)12-48
    • § 12:6.1 : The “Causal Connection”12-51
    • § 12:6.2 : Section 17(e)(2)12-53
  • § 12:7 : Section 17(j) and Rule 17j-112-55
    • § 12:7.1 : SEC Enforcement of Rule 17j-112-55
    • § 12:7.2 : Industry Blue-Ribbon Panel12-57
Chapter 13: Personal Trading Activities Mari Anne Pisarri ~ Pickard & Djinis LLP
  • § 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 Bibb L. Strench ~ Seward & Kissel LLP
  • § 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 Performance14-7
    • § 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 Dollars14-9
    • § 14:3.6 : Trade Allocation Practices14-10
    • § 14:3.7 : Valuation of Portfolio Holdings and Pricing of Fund Shares14-10
    • § 14:3.8 : Determining Portfolio Liquidity14-11
    • § 14:3.9 : Money Market Funds14-11
    • § 14:3.10 : Custody Arrangements14-12
    • § 14:3.11 : Exemptive Rules for Transactions Involving Affiliates14-13
    • § 14:3.12 : Securities Lending Programs and Guidelines14-13
    • § 14:3.13 : Fidelity Bond Arrangements14-13
    • § 14:3.14 : Proxy Voting14-14
    • § 14:3.15 : Market Timing14-14
    • § 14:3.16 : Selective Disclosure of Portfolio Holdings14-14
    • § 14:3.17 : Closed-End Fund Share Trading Discounts14-15
    • § 14:3.18 : Codes of Ethics Under the 1940 Act and the Sarbanes-Oxley Act14-15
    • § 14:3.19 : Risk Oversight14-16
  • § 14:4 : Duties Imposed Under State Law14-16
  • § 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 Banks14-19
      • [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 Board14-21
    • § 14:5.4 : Independent Chairman of the Board and Lead Directors14-23
    • § 14:5.5 : Committees14-23
      • [A] : Responsibilities of the Audit Committee14-24
      • [B] : Nominating Committee14-25
    • § 14:5.6 : Director Compensation14-25
    • § 14:5.7 : Disqualification of Directors14-26
    • § 14:5.8 : Annual Self-Assessments14-26
    • § 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 Directors14-28
    • § 14:6.1 : Background14-28
    • § 14:6.2 : Nominating Directors14-29
    • § 14:6.3 : Vacancies14-29
  • § 14:7 : Disclosure Requirements14-29
  • § 14:8 : Director Insurance and Indemnification14-32
  • § 14:9 : Best Practices14-32
Chapter 15: Shareholder Voting Bibb L. Strench ~ Seward & Kissel LLP
  • § 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 Elizabeth Derbes ~ Wilmer Hale LLP
James E. Anderson ~ Wilmer Cutler Pickering Hale and Dorr LLP
John Faust ~ WilmerHaler LLP
  • § 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 Christopher E. Palmer ~ Goodwin Procter LLP
  • § 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: Practical Considerations in Dealing with Valuation Matters and Correcting Net Asset Value Errors; And Appendix 18A: Fund Policies and Procedures for Net Asset Value Error Correction Janna Manes ~ Stroock & Stroock & Lavan LLP
Linda Y Kim ~ Stroock & Stroock & Lavan LLP
  • § 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 Board18-5
    • § 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 Events18-11
      • [C] : Monitoring for Significant Events18-11
      • [D] : Fair Valuation Services for Foreign Securities18-12
    • § 18:4.3 : Prices Determined Not to Be Reliable— Valuation Overrides18-13
  • § 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 NAV18-16
  • § 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 Philip Newman ~ Goodwin Procter LLP
  • § 19:1 : Introduction19-2
  • § 19:2 : Statutory Framework19-3
  • § 19:3 : Special Rules for Mutual Fund Marketing Material19-5
    • § 19:3.1 : Rule 135a—“Generic Advertisement”19-5
    • § 19:3.2 : Rule 482 Advertisement19-6
      • [A] : Performance Generally19-8
      • [B] : Money Market Funds19-10
      • [C] : Other Funds19-11
      • [D] : Proposed Amendments Regarding Target Date Retirement Funds19-11
      • [E] : Mutual Fund Performance in ERISA Fee Disclosures19-14
    • § 19:3.3 : Rule 498—The Summary Prospectus19-15
  • § 19:4 : Anti-Fraud Provisions19-16
    • § 19:4.1 : Rule 156—False or Misleading Sales Literature19-16
      • [A] : “Sales Literature”19-17
      • [B] : “Misleading”19-17
      • [C] : Proposed Amendments Regarding Target Date Retirement Funds19-18
    • § 19:4.2 : Rule 34b-1 Under the 1940 Act19-19
    • § 19:4.3 : Additional Interpretive Positions19-20
      • [A] : General Considerations19-20
      • [B] : Interim Changes19-21
      • [C] : New Classes of Shares or Additional Feeder Funds19-23
      • [D] : Performance of Related Accounts19-24
  • § 19:5 : Marketing via the Internet and by Other Similar Electronic Means19-25
    • § 19:5.1 : Accompanied or Preceded by a Statutory Prospectus or Summary Prospectus19-26
    • § 19:5.2 : Hyperlinks19-27
    • § 19:5.3 : Other Issues19-30
  • § 19:6 : NASD Conduct Rules, Guidelines, and Other Interpretive Positions19-31
    • § 19:6.1 : NASD Conduct Rules 2210 and 221119-31
      • [A] : Definitions of Advertisement and Sales Literature19-31
      • [B] : Standards for Communicating with the Public19-32
      • [C] : Institutional Sales Material19-34
      • [D] : Performance Sales Material19-36
    • § 19:6.2 : NASD Guidelines on Rankings19-37
    • § 19:6.3 : Bond Fund Volatility Ratings19-38
    • § 19:6.4 : Related Performance Information19-39
    • § 19:6.5 : Advertising Recent Fund Performance19-40
    • § 19:6.6 : Hyperlinks19-40
    • § 19:6.7 : Use of Social Media19-41
    • § 19:6.8 : Proposed Amendments to FINRA Rules Governing Communications with the Public19-42
  • § 19:7 : Filing Requirements for Mutual Fund Marketing Material19-44
    • § 19:7.1 : SEC Filing Requirements19-44
    • § 19:7.2 : FINRA Filing Requirements19-44
  • § 19:8 : The Dodd-Frank Wall Street Reform and Consumer Protection Act19-45
    • § 19:8.1 : Study Regarding Mutual Fund Advertising19-46
    • § 19:8.2 : Study Regarding Financial Literacy Among Investors19-46
Chapter 20: Distribution; And Appendices 20A-20B Susan Hoaglund ~ Godfrey & Kahn, SC
Pamela Krill ~ CUNA Mutual Group
Carol A Gehl ~ Godfrey & Kahn S C
  • § 20:1 : Introduction20-4
  • § 20:2 : Registration of Mutual Fund Shares20-4
  • § 20:3 : Distribution Channels20-5
    • § 20:3.1 : Distribution by Fund Itself Without Use of a Distributor20-5
    • § 20:3.2 : Distribution Through a Distributor20-7
    • § 20:3.3 : Distribution Through Mutual Fund Supermarkets20-7
    • § 20:3.4 : Distribution Through Retirement Plans20-8
  • § 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 Funds20-12
  • § 20:5 : Regulation of Principal Underwriter/Distributor20-13
  • § 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 Loads20-17
      • [B] : Deferred Sales Loads20-17
    • § 20:6.3 : FINRA Regulation of Sales Charges20-19
    • § 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 System20-23
    • § 20:7.2 : Retail Price Maintenance20-25
  • § 20:8 : Board Responsibilities Over Fund Distribution20-27
    • § 20:8.1 : Approval of Principal Distributor and Distribution Agreement20-28
    • § 20:8.2 : Approval of Rule 12b-1 Distribution Plan20-29
    • § 20:8.3 : Approval of Rule 18f-3 Multi-Class Plan20-33
  • 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 Laurin Blumenthal Kleiman ~ Sidley Austin LLP
Carol J Whitesides ~ Sidley Austin LLP
  • § 21:1 : Introduction21-2
    • § 21:1.1 : Broker-Dealers21-2
    • § 21:1.2 : Mutual Fund “Supermarkets”21-3
    • § 21:1.3 : Defined Contribution Retirement Plans21-4
    • § 21:1.4 : 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 Accounts21-10
    • § 21:2.4 : Revenue Sharing and Shelf Space Payments21-11
  • § 21:3 : Forward Pricing Requirements and the “Hard 4 P.M. Close”21-12
  • § 21:4 : Controls on Short-Term and Late Trading21-14
    • § 21:4.1 : Redemption Fees21-15
Chapter 22: Payments for Distribution by Open-End Funds: Practical Considerations in Structuring a 12b-1 Plan Janna Manes ~ Stroock & Stroock & Lavan LLP
Brad A Green ~ Stroock & Stroock & Lavan LLP
  • § 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 Contracts22-14
  • § 22:5 : Board Approval Process22-14
  • § 22:6 : Prohibition of Brokerage Direction22-16
  • § 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 Joseph P. Savage ~ FINRA
  • § 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: Retention Schedule of Materials Identified in Rules 31a-1 and 31a-2 Under the Investment Company Act Peter A Ambrosini ~ State Street Global Advisors
Karen B Clark ~ State Street Global Advisors
  • § 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 Christopher S. Petito ~ Dewey & LeBoeuf LLP
  • § 25:1 : Overview25-2
  • § 25:2 : SEC Authority25-2
  • § 25:3 : Types and Scope of Examinations25-4
  • § 25:4 : Mechanics of an Inspection25-7
    • § 25:4.1 : Preparation25-7
      • [A] : SEC Preparation25-7
      • [B] : Preparation by the Firm25-8
      • [C] : Role of the CCO25-8
    • § 25:4.2 : The SEC’s Request for Information25-9
    • § 25:4.3 : “Culture of Compliance”25-10
    • § 25:4.4 : Issues Related to Document Production25-11
      • [A] : Privilege Issues25-14
      • [B] : Seeking Confidential Treatment25-18
    • § 25:4.5 : SEC’s Activity on the Premises25-19
    • § 25:4.6 : Notification of Findings25-19
    • § 25:4.7 : Responding to Deficiency Letters25-20
    • § 25:4.8 : Confidentiality of Findings25-20
  • § 25:5 : Current Focus Areas25-21
Chapter 26: Compliance Policies and Procedures
  • § 26:1 : Background26-2
    • § 26:1.1 : Text of Rule 38a-126-2
    • § 26:1.2 : Coverage26-5
  • § 26:2 : Adoption and Implementation of Written Policies and Procedures26-5
    • § 26:2.1 : Required Scope of Written Policies and Procedures26-5
    • § 26:2.2 : Oversight of Service Providers’ Policies and Procedures26-7
  • § 26:3 : Board Approval of Written Policies and Procedures26-8
  • § 26:4 : Annual Review26-8
  • § 26:5 : Chief Compliance Officer26-9
    • § 26:5.1 : CCO Competency; Seniority in Organization26-9
    • § 26:5.2 : CCO Independence from Fund Management26-9
    • § 26:5.3 : CCO Report and Meeting with the Board26-9
    • § 26:5.4 : CCO Oversight of Service Providers26-10
  • § 26:6 : Record Keeping26-10
  • § 26:7 : Treatment of Unit Investment Trusts Under the Rule26-11
  • § 26:8 : Requirements Under the Investment Advisers Act26-11
    • § 26:8.1 : Text of Rule 206(4)-726-11
    • § 26:8.2 : Adoption and Implementation of Written Policies and Procedures26-12
      • [A] : Required Scope of Written Policies and Procedures26-12
      • [B] : Format26-13
      • [C] : Written Supervisory Procedures26-13
    • § 26:8.3 : Annual Review26-14
    • § 26:8.4 : Chief Compliance Officer26-14
    • § 26:8.5 : Record Keeping26-15
Chapter 27: Conducting an Investment Company/Adviser Compliance Review; And Appendices 27A-27B Richard Marshall ~ Ropes & Gray LLP
  • § 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 Domenick Pugliese ~ Paul, Hastings, Janofsky & Walker LLP
  • § 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 Janna Manes ~ Stroock & Stroock & Lavan LLP
Linda Y Kim ~ Stroock & Stroock & Lavan LLP
  • § 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: Money Market Funds Douglas Dick ~ Dechert LLP
Jack W. Murphy ~ Dechert LLP
Stephen T. Cohen ~ Dechert LLP
Brenden P. Carroll ~ Dechert LLP
  • § 30:1 : Introduction30-3
  • § 30:2 : What Is a Money Market Fund?30-4
  • § 30:3 : Rule 2a-730-7
    • § 30:3.1 : Exemption from Standard Valuation Procedures30-7
    • § 30:3.2 : Holding Out and Use of Names and Titles30-8
    • § 30:3.3 : Board Findings and Procedures for Rule 2a-7 Reliance30-8
      • [A] : Required Board Findings30-8
      • [B] : Required Procedures: Funds Using the Amortized Cost Method30-9
        • [B][1] : Shadow Pricing and Related Board Actions30-9
      • [C] : Required Procedures: Funds Using the Penny-Rounding Method30-10
      • [D] : Specific Procedures: All Funds30-11
        • [D][1] : Stress Testing30-11
        • [D][2] : Other Specific Products30-12
    • § 30:3.4 : The Risk-Limiting Provisions30-14
      • [A] : Maturity30-14
        • [A][1] : Portfolio Maturity30-14
          • [A][1][a] : Calculating Weighted Average Life30-15
        • [A][2] : Maturity of Portfolio Securities30-16
          • [A][2][a] : Adjustable Rate Government Securities30-17
          • [A][2][b] : Variable Rate Securities30-17
          • [A][2][c] : Floating Rate Securities30-18
          • [A][2][d] : Repurchase Agreements30-18
          • [A][2][e] : Portfolio Lending Agreements30-19
          • [A][2][f] : Money Market Fund Shares30-19
      • [B] : Portfolio Quality30-20
        • [B][1] : U.S. Dollar Denominated Securities30-20
        • [B][2] : Securities Presenting Minimal Credit Risk30-20
        • [B][3] : Eligible Securities30-22
          • [B][3][a] : First Tier and Second Tier Securities30-23
          • [B][3][b] : Rated Securities30-24
          • [B][3][c] : Unrated Securities30-25
          • [B][3][d] : Securities Subject to Guarantees or Demand Features30-26
          • [B][3][e] : Designated NRSROs30-29
      • [C] : Portfolio Diversification30-30
        • [C][1] : Issuer Diversification30-31
          • [C][1][a] : General Diversification Requirements30-31
            • [C][1][a][i] : Taxable and National Funds30-31
            • [C][1][a][ii] : Single State Funds30-32
          • [C][1][b] : Diversification Requirements for Second Tier Securities30-33
          • [C][1][c] : Guidelines for Calculating Issuer Diversification30-33
            • [C][1][c][i] : Repurchase Agreements, Refunded Securities, and Conduit Securities30-34
            • [C][1][c][ii] : Refunded Securities and Conduit Securities30-35
            • [C][1][c][iii] : Asset-Backed Securities30-36
            • [C][1][c][iv] : Shares of Money Market Funds30-37
        • [C][2] : Demand Feature and Guarantee Diversification30-37
          • [C][2][a] : Diversification Requirements for Demand Features and Guarantees30-37
          • [C][2][b] : Guidelines for Calculating Demand Feature and Guarantee Diversification30-39
      • [D] : Portfolio Liquidity30-40
        • [D][1] : Background30-40
        • [D][2] : Portfolio Liquidity Requirements30-41
          • [D][2][a] : General Liquidity Requirement/Know Your Customer Procedures30-42
          • [D][2][b] : Overall Limitation on the Acquisition of Illiquid Securities30-43
          • [D][2][c] : Minimum Daily and Weekly Requirements30-44
    • § 30:3.5 : Downgrades and Defaults of Portfolio Securities30-46
      • [A] : Downgrades30-46
      • [B] : Securities Subject to Demand Features30-46
      • [C] : Defaults and Other Events Requiring Disposition30-47
      • [D] : Responding to Issues in Less Liquid Markets30-48
      • [E] : Notice to the SEC30-51
    • § 30:3.6 : Disclosure of Portfolio Information on Public Website30-51
    • § 30:3.7 : Recordkeeping30-53
    • § 30:3.8 : Delegation of Board Responsibilities30-54
  • § 30:4 : Buyouts of Problematic Securities30-55
  • § 30:5 : Industry Concentration30-57
  • § 30:6 : Disclosure and Advertising Standards30-58
    • § 30:6.1 : Disclosure30-58
      • [A] : Form N-1A30-58
      • [B] : Form N-MFP30-59
    • § 30:6.2 : Advertising30-64
  • § 30:7 : Suspension of Redemptions30-66
  • § 30:8 : Processing of Purchases and Redemptions30-67
  • § 30:9 : Next Steps—The Ongoing Debate30-67
    • § 30:9.1 : PWG Report30-67
    • § 30:9.2 : SEC Roundtable30-69
    • § 30:9.3 : ICI Summit30-70
    • § 30:9.4 : FSOC 2011 Annual Report30-70
    • § 30:9.5 : Potential Proposals to Further Amend Rule 2a-730-71
      • [A] : Floating Net Asset Value30-73
      • [B] : Capital Requirements and Limitations or Fees on Redemptions30-73
        • [B][1] : Capital Requirements30-73
        • [B][2] : Limitations or Fees on Redemptions30-74
      • [C] : Possible Oversight by FSOC30-75
  • § 30:10 : Conclusion30-77
Chapter 31: Closed-End Investment Companies; And Appendix 31A: Form N-2: Registration Statement for Closed-End Management Investment Companies; And Chapter 31A: An Overview of the Formation and Operation of Exchange-Traded Products Wendell M. Faria ~ Paul, Hastings, Janofsky & Walker LLP
Bibb L. Strench ~ Seward & Kissel LLP
Alexandre V. Rourk ~ Seward & Kissel LLP
  • § 31:1 : Introduction31-2
  • § 31:2 : What Is a Closed-End Investment Company?31-3
  • § 31:3 : Reasons for Relative Unpopularity of Closed-End Companies31-7
    • § 31:3.1 : High-Cost Exit Strategies for Investors31-8
    • § 31:3.2 : The Discount Phenomenon31-8
  • § 31:4 : Reasons for Choosing to Operate as a Closed-End Company31-11
  • § 31:5 : Regulation of the Offer and Sale of Closed-End Company Shares31-13
  • § 31:6 : Financing Distribution Costs of Closed-End Companies31-16
  • § 31:7 : Registration Procedures for Closed-End Companies31-17
  • § 31:8 : Periodic Reporting Under the Investment Company Act31-17
  • § 31:9 : Regulation of Share Repurchases by Closed-End Companies31-18
    • § 31:9.1 : Requirements of the Exchange Act31-18
    • § 31:9.2 : Repurchases in the Course of a Distribution: Rule 102 of Regulation M31-19
    • § 31:9.3 : Requirements of the Investment Company Act31-20
      • [A] : Rule 23c-131-20
      • [B] : Rule 23c-231-21
      • [C] : Rule 23c-331-21
  • § 31:10 : Regulation of the Operations of the Closed-End Company31-24
    • § 31:10.1 : The Capital Structure of Closed-End Companies31-24
    • § 31:10.2 : Restrictions on Investments by Closed-End Companies31-26
  • Appendix 31A : Form N-2: Registration Statement for Closed-End Management Investment CompaniesApp. 31A-1
  • § 31A:1 : Introduction31A-2
  • § 31A:2 : Product Description31A-3
    • § 31A:2.1 : Exchange-Traded Funds (ETFs)31A-3
    • § 31A:2.2 : Exchange-Traded Vehicles (ETVs)31A-4
    • § 31A:2.3 : Exchange-Traded Notes (ETNs)31A-4
  • § 31A:3 : ETP Registration31A-5
    • § 31A:3.1 : Registration of Securities31A-5
      • [A] : ETFs31A-5
      • [B] : ETVs and ETNs31A-6
    • § 31A:3.2 : Entity Registration31A-6
    • § 31A:3.3 : CFTC Registration31A-6
  • § 31A:4 : Tax Considerations31A-7
    • § 31A:4.1 : ETFs31A-7
    • § 31A:4.2 : ETVs31A-7
    • § 31A:4.3 : ETNs31A-7
  • § 31A:5 : Exemptive Relief31A-7
    • § 31A:5.1 : ETFs31A-8
    • § 31A:5.2 : ETVs and ETNs31A-9
  • § 31A:6 : Listing on an Exchange31A-9
  • § 31A:7 : Governance Standards31A-10
    • § 31A:7.1 : ETFs31A-10
    • § 31A:7.2 : ETVs and ETNs31A-11
  • § 31A:8 : Operational Issues31A-11
    • § 31A:8.1 : Capital31A-11
      • [A] : ETFs31A-11
      • [B] : ETVs and ETNs31A-12
    • § 31A:8.2 : Marketing31A-12
    • § 31A:8.3 : Create/Redeem Process31A-13
      • [A] : ETFs and ETVs31A-13
      • [B] : ETNs31A-13
    • § 31A:8.4 : Calculation of Net Asset Value31A-13
      • [A] : ETFs31A-13
      • [B] : ETVs31A-14
      • [C] : ETNs31A-14
    • § 31A:8.5 : Fees31A-15
      • [A] : ETFs31A-15
      • [B] : ETVs31A-15
      • [C] : ETNs31A-15
  • § 31A:9 : Domicile31A-16
    • § 31A:9.1 : ETFs31A-16
    • § 31A:9.2 : ETVs and ETNs31A-16
  • § 31A:10 : Conclusion31A-16
Chapter 32: Exchange Traded Funds Stuart M Strauss ~ Clifford Chance LLP
  • § 32:1 : Background32-2
  • § 32:2 : Organizational Issues32-3
    • § 32:2.1 : Form of Organization32-3
    • § 32:2.2 : Mechanics of Purchases and Sales32-4
      • [A] : Exchange Transactions32-4
      • [B] : Transactions32-4
        • [B][1] : Purchases32-4
        • [B][2] : Redemptions32-5
    • § 32:2.3 : The Arbitrage Process32-6
    • § 32:2.4 : Tax Matters32-6
      • [A] : ETFs as Compared to Mutual Funds32-6
      • [B] : Tax Implications for Purchaser32-6
      • [C] : Tax Implications for Redeemer32-6
  • § 32:3 : 1940 Act Issues32-7
    • § 32:3.1 : Registration as an Open-End Company or a Unit Investment Trust32-7
    • § 32:3.2 : Section 17(a)32-8
    • § 32:3.3 : Section 1832-8
    • § 32:3.4 : Section 22(d) and Rule 22c-132-9
    • § 32:3.5 : Section 22(e)32-10
    • § 32:3.6 : Section 2632-10
  • § 32:4 : 1934 Act Issues32-11
    • § 32:4.1 : Regulation M32-11
    • § 32:4.2 : Tender Offers32-12
    • § 32:4.3 : Margin32-12
    • § 32:4.4 : Disclosure Requirements32-13
      • [A] : Confirmations32-13
      • [B] : Broker Relationship32-13
      • [C] : Advance Notice of Corporate Actions32-14
    • § 32:4.5 : Generic No-Action Relief32-14
    • § 32:4.6 : Sections 13(d) and 16(a)32-15
    • § 32:4.7 : NASD Conduct Rules32-15
  • § 32:5 : New Products and Recent Developments32-16
    • § 32:5.1 : Actively Managed ETFs32-16
    • § 32:5.2 : ETFs on Alternative Asset Classes32-17
    • § 32:5.3 : Investment In ETFs by Fund of Funds32-17
    • § 32:5.4 : Investment in ETFs by Retirement Plans32-18
    • § 32:5.5 : Proposed Rule 6c-1132-18
Chapter 33: The Sarbanes-Oxley Act John T. Bostelman ~ Sullivan & Cromwell LLP
  • § 33:1 : Overview33-3
  • § 33:2 : Investment Companies Affected by the SOA33-3
    • § 33:2.1 : Registered Management Investment Companies33-4
      • [A] : Open-End and Closed-End Companies33-4
      • [B] : Form N-CSR33-5
    • § 33:2.2 : Unit Investment Trusts33-6
  • § 33:3 : Rules That Apply to All Registered Investment Companies33-6
    • § 33:3.1 : Management Certifications33-6
      • [A] : SOA Section 302 Certifications33-6
        • [A][1] : Form N-CSR33-6
        • [A][2] : Form N-Q33-7
        • [A][3] : Effective Date33-8
      • [B] : SOA Section 906 Certifications33-8
    • § 33:3.2 : Disclosure Controls and Procedures33-8
    • § 33:3.3 : Internal Control Over Financial Reporting33-9
    • § 33:3.4 : Audit Committee Financial Expert33-10
      • [A] : Requirements33-10
      • [B] : Definition of Audit Committee Financial Expert33-11
      • [C] : Safe Harbor33-11
    • § 33:3.5 : Code of Ethics33-12
      • [A] : Requirements33-12
      • [B] : Definition of Code of Ethics33-13
      • [C] : Public Availability of Code of Ethics33-13
      • [D] : Amendments and Waiver33-14
    • § 33:3.6 : Auditors33-14
      • [A] : Scope of Rules33-15
        • [A][1] : Definition of Investment Company Complex33-15
        • [A][2] : Definition of Audit Client33-16
        • [A][3] : Summary of Scope of Various Rules33-16
      • [B] : Non-Audit Services33-18
        • [B][1] : Prohibited Services33-19
        • [B][2] : Special Considerations Regarding Tax Services33-20
      • [C] : Audit Committee Pre-Approval of Services Provided by Auditors33-21
        • [C][1] : Pre-Approval Required33-21
        • [C][2] : Alternative Pre-Approval Structure Permissible33-21
      • [D] : Other Independence-Impairing Relationships33-22
        • [D][1] : Financial Relationships33-22
        • [D][2] : Business Relationships33-22
        • [D][3] : Contingent Fees33-22
        • [D][4] : Limited Quality Control Exception33-23
      • [E] : Disclosure Relating to Fees Paid to Accountants and Pre-Approval Policies and Procedures33-23
        • [E][1] : Non-Audit Fees33-23
        • [E][2] : Other Disclosures33-24
      • [F] : Liability33-24
    • § 33:3.7 : Other Safeguards Against Auditor Conflicts33-24
      • [A] : Audit Partner Rotation33-24
        • [A][1] : Lead and Concurring Partners33-25
        • [A][2] : Other Audit Partners on the Audit Engagement Team33-25
      • [B] : Employing Former Audit Professionals33-25
        • [B][1] : One-Year Cooling-Off Period33-25
        • [B][2] : Pre-SOA Employment Prohibitions33-26
      • [C] : Compensation of Audit Partners33-27
      • [D] : Communications with the Audit Committee33-27
        • [D][1] : Required Communications33-27
        • [D][2] : Special Timing Considerations for Investment Companies33-28
      • [E] : Retention of Workpapers33-28
      • [F] : Improper Influence on Conduct of Audits33-29
    • § 33:3.8 : Attorneys33-29
      • [A] : Covered Attorneys—Appearing or Practicing Before the SEC33-30
      • [B] : Up-the-Ladder Reporting33-31
      • [C] : Qualified Legal Compliance Committee33-31
      • [D] : Noisy Withdrawal Proposals33-32
    • § 33:3.9 : Proxy Statement Disclosure Regarding Nominating Committee Functions and Communications Between Security Holders and Board of Directors33-32
  • § 33:4 : Provisions That Apply Only to Listed Investment Companies33-32
    • § 33:4.1 : Accelerated Reporting Under Section 16 of the Exchange Act33-33
    • § 33:4.2 : Audit Committee—Independence and Required Functions33-33
      • [A] : Summary of Required Functions33-33
        • [A][1] : Selection and Oversight33-34
        • [A][2] : Complaint Procedures33-34
        • [A][3] : Authority to Engage Advisers and Access to Adequate Funding33-35
      • [B] : Independence Requirement33-35
      • [C] : Required Disclosures33-36
      • [D] : Compliance33-36
      • [E] : NYSE, Nasdaq, and Amex Audit Committee Rules33-37
    • § 33:4.3 : Increased Review of Periodic Reports33-38
  • § 33:5 : Provisions That Are of Limited Relevance or Do Not Apply to Investment Companies33-38
    • § 33:5.1 : Provisions of Limited Relevance33-38
      • [A] : Disgorgement for Restatements33-38
      • [B] : Temporary Freeze on Bonus and Special Payments33-39
      • [C] : Whistleblower Protection33-39
      • [D] : Benefit Plan Blackouts33-39
    • § 33:5.2 : Provisions That Do Not Apply33-40
Chapter 34: Mutual Fund Anti-Money Laundering Rules Satish M. Kini ~ Debevoise & Plimpton LLP
Andrew Kales ~ Goodwin Procter LLP
  • § 34:1 : Introduction34-3
    • § 34:1.1 : The Money Laundering Process34-4
    • § 34:1.2 : Use of Mutual Funds in the Money Laundering Process34-5
  • § 34:2 : Criminal Money Laundering Laws34-5
  • § 34:3 : The Bank Secrecy Act (BSA)34-6
  • § 34:4 : Regulations Implemented Under the USA PATRIOT Act34-8
    • § 34:4.1 : Overview34-8
    • § 34:4.2 : Section 352: AML Programs for Mutual Funds34-10
      • [A] : Policies and Procedures34-11
      • [B] : Designation of a Compliance Officer34-12
      • [C] : Ongoing Training34-12
      • [D] : Independent Audit Testing34-13
    • § 34:4.3 : Section 326: Customer Identification for Mutual Funds34-13
      • [A] : Definition of Customer34-13
      • [B] : Definition of Account34-15
      • [C] : Minimum CIP Requirements34-16
        • [C][1] : Collection of Customer Identification Information34-16
        • [C][2] : Verification of Customer Identity34-17
          • [C][2][a] : Documentary Verification34-17
          • [C][2][b] : Non-Documentary Verification34-18
        • [C][3] : Additional Verification for Certain Customers34-18
        • [C][4] : Lack of Verification34-18
      • [D] : Record Keeping34-19
      • [E] : Reliance on Other Financial Institutions34-19
      • [F] : Notice to Customers34-20
      • [G] : Comparison with Government Lists34-21
    • § 34:4.4 : Section 356: Suspicious Activity Reporting for Mutual Funds34-21
      • [A] : Reporting Requirements34-22
      • [B] : Filing Requirements34-23
      • [C] : Joint Filing of SARs34-24
      • [D] : Contracting Performance of SAR Obligations to Other Entities34-25
      • [E] : Document Retention34-25
      • [F] : Confidentiality and Safe Harbor from Liability34-25
    • § 34:4.5 : Section 314: Special Information Sharing Procedures34-27
      • [A] : Section 314(a): Information Sharing Between Federal Law Enforcement Agencies and Financial Institutions34-27
        • [A][1] : Search Requests34-27
        • [A][2] : Report to FinCEN34-28
        • [A][3] : Designation of Contact Person34-28
        • [A][4] : Use and Security of Information Requests34-28
      • [B] : Section 314(b): Voluntary Information Sharing Among Financial Institutions (31 C.F.R. § 103.110)34-29
        • [B][1] : Safe Harbor from Certain Liability34-29
        • [B][2] : Entities with Which Information May Be Shared34-29
        • [B][3] : Notice, Verification, and Use and Security of Information Requirements34-30
        • [B][4] : Information Sharing Between Financial Institutions and the Federal Government34-31
    • § 34:4.6 : Section 312: Due Diligence Requirements for Foreign Correspondent and Private Banking Accounts34-31
      • [A] : Due Diligence Programs for Correspondent Accounts34-32
        • [A][1] : Special Due Diligence for Correspondent Accounts of Foreign Financial Institutions34-32
        • [A][2] : Enhanced Due Diligence for Correspondent Accounts of Certain Non-U.S. Banks34-33
        • [A][3] : Failure of Due Diligence34-35
      • [B] : Due Diligence for Private Banking Accounts34-35
        • [B][1] : Special Due Diligence for Private Banking Accounts of Non-U.S. Persons34-35
        • [B][2] : Enhanced Due Diligence for Private Banking Accounts of Senior Foreign Political Figures34-36
        • [B][3] : Failure of Due Diligence34-36
    • § 34:4.7 : Section 311: Special Measures34-37
  • § 34:5 : OFAC Sanctions Regimes34-38
    • § 34:5.1 : Specially Designated Nationals (SDNs)34-38
    • § 34:5.2 : Country Sanctions Programs34-38
    • § 34:5.3 : OFAC Compliance Programs and Compliance Guidance34-39
      • [A] : 2004 Guidance34-39
      • [B] : 2008 Guidance34-40
        • [B][1] : Screening Focus34-40
        • [B][2] : Identity Verification34-40
        • [B][3] : Risk Factors34-40
        • [B][4] : Organizational Focus34-41
Chapter 35: Litigation Under the Investment Company Act of 1940; And Appendix 35A: Section 36(b) of the 1940 Act Lori A. Martin ~ WilmerHale LLP
  • § 35:1 : Introduction: Early Advisory Fee Litigation35-2
    • § 35:1.1 : The Rise of Mutual Funds and the Limits of the Investment Company Act35-2
    • § 35:1.2 : Early Excessive Fee Litigation35-5
    • § 35:1.3 : SEC Proposals for Reform35-7
  • § 35:2 : Section 36(b) of the 1940 Act35-9
    • § 35:2.1 : Excessive Fee Litigation Under Section 36(b)35-9
      • [A] : The First Cases35-10
      • [B] : Gartenberg and Investment Advisory Fees35-11
        • [B][1] : Nature and Quality of the Services Provided35-12
        • [B][2] : Profitability of the Fund to the Adviser/Cost of Providing Services35-13
        • [B][3] : Fall-Out Benefits35-14
        • [B][4] : Economies of Scale35-15
        • [B][5] : Comparative Fee Structure35-16
        • [B][6] : Independence and Conscientiousness of the Trustees35-17
        • [B][7] : Challenges to Director Independence35-18
      • [C] : Beyond Gartenberg: The Supreme Court Review of Section 36(b) in Jones v. Harris35-21
      • [D] : Beyond Jones: Does Section 36(b) Permit General Fiduciary Duty Claims?35-25
    • § 35:2.2 : The Scope of Section 36(b)35-29
      • [A] : To Which Fees Does It Apply?35-29
        • [A][1] : Payments for Advisory and Non-Advisory Services35-29
        • [A][2] : Rule 12b-1 and Distribution Fees35-29
        • [A][3] : Transfer Agent Fees35-31
        • [A][4] : Other Fees35-31
      • [B] : Section 36(b) Procedural Considerations35-31
        • [B][1] : Standard for Pleading35-31
        • [B][2] : No Prior Demand Required35-35
        • [B][3] : Direct versus Derivative and Class Action Issues35-36
        • [B][4] : Standing35-37
        • [B][5] : Proper Defendants35-39
        • [B][6] : One-Year Look-Back35-40
        • [B][7] : Limits on Damages35-42
        • [B][8] : Preemption of State Law35-42
        • [B][9] : No Right to Jury Trial35-43
  • § 35:3 : Private Litigation Under Other Sections of the Investment Company Act35-44
  • Appendix 35A : Section 36(b) of the 1940 ActApp. 35A-1
Chapter 36: ERISA Issues for Mutual Fund Advisers William A. Schmidt ~ Kirkpatrick & Lockhart Preston Gates Ellis LLP
Kristina M Zanotti ~ K&L Gates LLP
  • § 36:1 : Mutual Funds Under ERISA36-2
  • § 36:2 : Reporting and Disclosure36-4
    • § 36:2.1 : Form 5500, Schedule C36-4
    • § 36:2.2 : Service Provider Disclosures Under ERISA Section 408(b)(2)36-6
    • § 36:2.3 : Participant-Level Disclosure36-7
  • § 36:3 : Prohibited Transactions Under ERISA36-8
  • § 36:4 : Plan Investments in Mutual Funds36-10
    • § 36:4.1 : Potential Prohibited Transactions36-10
  • § 36:5 : Prohibited Transaction Exemptions36-12
    • § 36:5.1 : Statutory Exemption for the Provision of Services Under ERISA Section 408(b)(2)36-12
    • § 36:5.2 : Relevant Prohibited Transaction Exemptions Issued by DOL36-13
      • [A] : Prohibited Transaction Exemption 75-136-13
      • [B] : Prohibited Transaction Exemption 77-336-14
      • [C] : Prohibited Transaction Exemption 77-436-15
      • [D] : Prohibited Transaction Exemption 84-2436-18
      • [E] : Prohibited Transaction Exemption 86-12836-18
  • § 36:6 : “Bundled” Asset Allocation Programs Using Related Mutual Funds36-19
  • § 36:7 : 12b-1 Fees36-21
  • § 36:8 : Participant Education and Investment Advice36-25
  • § 36:9 : Statutory Exemption for Investment Advice36-27
    • § 36:9.1 : General Requirements for Computer Models36-28
    • § 36:9.2 : Authorization, Disclosure, and Other Requirements36-29
    • § 36:9.3 : Relief for Plan Sponsors36-31
Chapter 37: The Mutual Fund Market Timing and Late Trading Scandal of 2003; And Appendices 37A-37E Audrey L Cheng ~ Pacific Investment Management Company LLC
Christopher S. Petito ~ Dewey & LeBoeuf LLP
  • § 37:1 : Introduction37-4
  • § 37:2 : Background—What Are the Abuses?37-9
    • § 37:2.1 : Late Trading37-9
    • § 37:2.2 : Market Timing37-13
    • § 37:2.3 : Revenue Sharing and Directed Brokerage37-18
    • § 37:2.4 : Other Abuses37-21
  • § 37:3 : Regulatory Response37-21
    • § 37:3.1 : Corporate Governance Changes37-21
      • [A] : Overview37-21
      • [B] : Amendments: In General37-28
      • [C] : Amendments: Supermajority of Independent Directors37-29
      • [D] : Amendments: Independent Board Chair37-30
      • [E] : Amendments: Annual Self-Assessment37-31
      • [F] : Amendments: Quarterly Executive Sessions37-32
      • [G] : Amendments: Authorization to Hire Independent Director Staff37-33
      • [H] : Amendments: Record-Keeping Requirements37-33
      • [I] : Best Practices Proposals37-33
    • § 37:3.2 : Requirement for Compliance Programs for Investment Advisers and Investment Companies37-34
      • [A] : Introduction37-34
      • [B] : New Compliance Program Rules37-35
      • [C] : Scope of the Compliance Program37-35
        • [C][1] : Investment Advisers37-37
        • [C][2] : Investment Companies37-37
      • [D] : Approval Requirements of Compliance Program37-41
      • [E] : Annual Review37-43
      • [F] : Duties of CCO37-43
        • [F][1] : Designation and Qualifications of CCO37-43
        • [F][2] : CCO Responsibilities37-44
      • [G] : Protection of CCO from Undue Influence37-46
      • [H] : Unit Investment Trusts37-47
      • [I] : Record Keeping37-47
    • § 37:3.3 : Investment Adviser Codes of Ethics37-48
      • [A] : Standards of Conduct37-48
      • [B] : Protection of Material Nonpublic Information37-48
      • [C] : Personal Securities Trading37-49
      • [D] : Other Requirements37-51
      • [E] : Effective Date37-52
    • § 37:3.4 : Mutual Fund Redemption Fees37-52
      • [A] : Redemption Fees37-53
      • [B] : Shareholder Information37-53
        • [B][1] : Fund Responsibilities37-53
        • [B][2] : Financial Intermediaries37-54
      • [C] : Exceptions37-56
      • [D] : Compliance Date37-57
    • § 37:3.5 : Proposed Amendments to the “Forward-Pricing” Rule: The 4:00 P.M. “Hard Close”37-57
      • [A] : Purchase and Sale Orders; Exchanges37-58
      • [B] : Exceptions37-58
      • [C] : Status37-59
    • § 37:3.6 : Disclosure of Market Timing Policies, Fair Value Pricing Policies, and Selective Disclosure of Portfolio Holdings37-59
      • [A] : Disclosure Relating to Frequent Purchases and Redemptions of Fund Shares37-60
      • [B] : Disclosure of Circumstances Under Which Funds Will Use Fair Value Pricing and the Effects of Such Use37-62
      • [C] : Selective Disclosure of Portfolio Holdings37-62
      • [D] : Compliance Date37-64
    • § 37:3.7 : Prohibition on Use of Brokerage Commissions to Finance Distribution37-65
      • [A] : Reasons for the Amendments37-65
      • [B] : Rule 12b-1 Amendments37-66
      • [C] : Compliance Date37-67
    • § 37:3.8 : Confirmation Requirements and Point of Sale Disclosure Requirements37-67
      • [A] : Confirmation of Transactions in Mutual Fund Shares, UIT Interests, and Municipal Fund Securities Used for Education Savings37-68
        • [A][1] : No Safe Harbor from Antifraud Provisions or Other Legal Requirements37-68
        • [A][2] : Transactions in Covered Securities37-69
        • [A][3] : Schedule 15C and the Form of Disclosure37-69
        • [A][4] : General Disclosure Requirements37-70
        • [A][5] : Additional Disclosures for Purchases—Cost Disclosure37-71
        • [A][6] : Additional Disclosures for Purchases—Sales Fee Disclosure37-72
        • [A][7] : Additional Disclosures for Purchases—Revenue Sharing and Portfolio Brokerage Disclosure37-72
        • [A][8] : Additional Disclosures for Purchases—Differential Compensation Disclosure37-73
        • [A][9] : Provisions Not Included in General and Purchase-Specific Requirements37-74
        • [A][10] : Periodic Disclosure Alternative37-74
        • [A][11] : Exemptive Provision37-75
        • [A][12] : Comparison Range Disclosure37-75
        • [A][13] : Disclosures About Transactions Effected by Multiple Firms37-75
        • [A][14] : Amendments to Rule 10b-1037-76
      • [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 Savings37-76
        • [B][1] : Securities Transactions and Persons Covered37-77
        • [B][2] : Timing of Disclosure37-77
        • [B][3] : Information Requirements37-77
        • [B][4] : Customers’ Right to Terminate Orders Made Prior to Disclosure37-78
        • [B][5] : Manner of Disclosure37-78
        • [B][6] : Record Keeping37-80
        • [B][7] : Exceptions37-80
      • [C] : Supplemental Internet-Based Disclosure37-81
      • [D] : Prospectus Disclosure37-82
    • § 37:3.9 : Disclosure of Breakpoint Discounts37-83
    • § 37:3.10 : Disclosure Relating to Approval of Investment Advisory Contracts37-84
      • [A] : Disclosure Requirement in Shareholder Reports37-84
      • [B] : Disclosure Enhancements37-85
      • [C] : Evaluating Factors37-86
      • [D] : Compliance Date37-86
    • § 37:3.11 : Disclosure Regarding Portfolio Managers37-86
      • [A] : Identification of Portfolio Management Team Members37-87
      • [B] : Disclosure of Other Accounts Managed and Potential Conflicts of Interest37-87
      • [C] : Disclosure of Portfolio Manager Compensation Structure37-88
      • [D] : Disclosure of Securities Ownership of Portfolio Managers37-89
      • [E] : Date of Disclosure37-89
      • [F] : Index Funds Are Covered37-89
      • [G] : Disclosure of Availability of Information37-90
      • [H] : Amendment of Form N-CSR37-90
      • [I] : Compliance Date37-90
    • § 37:3.12 : Registration of Certain Hedge Fund Advisers37-90
      • [A] : Goldstein v. Securities and Exchange Commission37-91
      • [B] : Implications of Goldstein37-93
      • [C] : SEC Response to Goldstein—Antifraud Rule and Proposed Accredited Natural Persons Rules37-95
        • [C][1] : Antifraud Rule Under the Advisers Act37-95
        • [C][2] : Proposed Accredited Natural Persons Rules Under the Securities Act37-97
  • § 37:4 : Legislative Proposals37-99
  • Appendix 37A : List of Market Timing and Late Trading CasesApp. 37A-1
  • Appendix 37B : Summary of H.R. 2420App. 37B-1
  • Appendix 37C : Format of Confirmation DisclosuresApp. 37C-1
  • Appendix 37D : Format of Point of Sale DisclosuresApp. 37D-1
  • Appendix 37E : Format of Internet-Based DisclosureApp. 37E-1
Chapter 38: Mutual Fund Taxation Roger Wise ~ Kirkpatrick & Lockhart LLP
  • § 38:1 : Introduction38-2
  • § 38:2 : Requirements for Treatment As a Regulated Investment Company38-2
    • § 38:2.1 : Domestic Corporation38-3
    • § 38:2.2 : Registration As a Management Company38-4
    • § 38:2.3 : Election to Be a RIC38-5
    • § 38:2.4 : Income Test38-5
      • [A] : Dividends and Interest38-6
      • [B] : Payments with Respect to Securities Loans38-7
      • [C] : Gains from Sale or Other Disposition of Stock, Securities, or Foreign Currencies, and Other Income38-8
      • [D] : Net Income Derived from an Interest in a QPTP38-9
    • § 38:2.5 : Diversification Requirements38-10
      • [A] : Diversification Tests in General38-10
      • [B] : Market Fluctuation Exception and Thirty-Day Cure Period38-12
    • § 38:2.6 : Conversion of Existing C Corporation to RIC38-13
  • § 38:3 : Distribution Requirement38-14
    • § 38:3.1 : Distribution Requirement in General38-14
    • § 38:3.2 : Preferential Dividends38-15
    • § 38:3.3 : Year-End Dividends and Spillover Dividends38-16
  • § 38:4 : Taxation of Shareholders38-16
    • § 38:4.1 : Ordinary Dividends, Qualified Dividend Income, and Dividends Received Deduction38-17
    • § 38:4.2 : Capital Gain Dividends and Undistributed Capital Gains38-19
    • § 38:4.3 : Exempt-Interest Dividends38-20
    • § 38:4.4 : Foreign Tax Credits38-20
    • § 38:4.5 : Interest-Related and Short-Term Capital Gains Dividends38-22
    • § 38:4.6 : Designating the Dividend38-23
    • § 38:4.7 : Sale or Other Disposition of Shares38-24
      • [A] : Calculation of Gain and Loss38-24
      • [B] : Special RIC Loss Limitations38-24
      • [C] : Wash Sales38-25
      • [D] : Applicable Wash Sales38-25
  • § 38:5 : Taxation of RICs38-26
    • § 38:5.1 : Income Tax38-27
    • § 38:5.2 : Excise Tax38-27
  • § 38:6 : Master-Feeder Funds38-28
Chapter 39: Mutual Fund Accounting and Financial Reporting; And Appendix 39A: Summary of Daily Activities of Fund Accounting Martin Jennings ~ PriceWaterhouse Coopers LLP
Richard Grueter ~ PriceWaterhouseCooper, LLP
  • § 39:1 : Introduction39-2
  • § 39:2 : Net Asset Value Calculation39-2
    • § 39:2.1 : Portfolio Updating Standard: T+139-5
  • § 39:3 : Fund Financial Statements39-6
  • § 39:4 : Fund Accounting Operations39-10
  • § 39:5 : Responsibilities of the Independent Registered Public Accounting Firm39-11
  • § 39:6 : Qualifications of the Independent Auditor39-13
  • § 39:7 : Required Auditor Communications39-15
    • § 39:7.1 : Auditor Independence39-16
    • § 39:7.2 : Audit of Financial Statements39-16
    • § 39:7.3 : Internal Controls39-16
    • § 39:7.4 : Reporting Under Applicable Auditing Standards39-17
    • § 39:7.5 : The Sarbanes-Oxley Act39-17
  • § 39:8 : Recent Fund Accounting and Financial Reporting Matters39-18
  • § 39:9 : Conclusion39-22
  • Appendix 39A : Summary of Daily Activities of Fund AccountingApp. 39A-1
Chapter 40: Commodity Pool Operator Status and Regulation Susan I. Gault-Brown ~ K&L Gates LLP
  • § 40:1 : Introduction40-3
  • § 40:2 : Bifurcated Regulatory System40-4
  • § 40:3 : Commodity Pool Operator Definition40-8
    • § 40:3.1 : Overview40-8
    • § 40:3.2 : Commodity Pool–CPO Structure40-9
    • § 40:3.3 : Commodity Interests40-10
      • [A] : Futures40-10
      • [B] : Commodity Options40-11
      • [C] : Swaps40-11
        • [C][1] : Overview40-11
        • [C][2] : Foreign Exchange Swaps and Forwards40-13
      • [D] : Retail Forex40-15
      • [E] : Leverage Contracts40-15
      • [F] : Commodity Pools40-16
    • § 40:3.4 : Commodity Pool Definition40-16
    • § 40:3.5 : CPO Definition “Engaged in a Business” Element40-19
    • § 40:3.6 : CPO Activities—Solicitation, Acceptance, or Receipt of Assets from Others40-19
  • § 40:4 : Exclusions and Exemptions40-22
    • § 40:4.1 : Overview40-22
    • § 40:4.2 : CFTC Rule 4.5—CFTC Exclusion from the CPO Definition40-22
      • [A] : Overview40-22
      • [B] : Eligible Operators and Qualifying Entities40-23
      • [C] : Registered Investment Companies40-24
        • [C][1] : Overview40-24
        • [C][2] : Bona Fide Hedging40-25
        • [C][3] : De Minimis Trading Restrictions40-27
          • [C][3][a] : Overview40-27
          • [C][3][b] : 5% Initial Margin Test40-27
          • [C][3][c] : 100% Net Notional Test40-28
          • [C][3][d] : Registered Funds-of-Funds40-29
          • [C][3][e] : Registered Funds with Wholly-Owned Commodity Subsidiaries40-31
        • [C][4] : Marketing Restriction40-32
      • [D] : Other Rule 4.5 Requirements40-34
        • [D][1] : Disclosure to Pool Participants40-34
        • [D][2] : Notice Filings40-34
        • [D][3] : Special Calls40-35
      • [E] : Combining Reliance on Rule 4.5 with Reliance on Rule 4.13 or with Registration40-35
    • § 40:4.3 : CFTC Exemptions from CPO Registration40-35
      • [A] : Rule 4.13(a)(3) and Rescinded Rule 4.13(a)(4)40-36
      • [B] : Offshore Fund Exemptions40-37
  • § 40:5 : CPO Regulation40-38
    • § 40:5.1 : Overview40-38
    • § 40:5.2 : CFTC Requirements40-39
      • [A] : Overview40-39
      • [B] : Regulatory Requirements Applicable to Fully-Compliant CPOs40-39
        • [B][1] : Disclosure Document40-39
          • [B][1][a] : Filings and Amendments40-39
          • [B][1][b] : Delivery and Acknowledgment40-40
          • [B][1][c] : Substantive Disclosure40-41
        • [B][2] : Performance Information Disclosure40-42
        • [B][3] : Reporting40-45
          • [B][3][a] : Overview40-45
          • [B][3][b] : Account Statements40-45
          • [B][3][c] : Annual Reports40-46
          • [B][3][d] : NFA Quarterly Reports40-46
          • [B][3][e] : Form CPO-PQR40-47
        • [B][4] : Recordkeeping40-48
        • [B][5] : Advertising40-48
        • [B][6] : Protection of Fund Assets40-49
      • [C] : Partial Exemptions from CPO Regulation for Registered CPOs of Publicly-Offered Funds40-49
        • [C][1] : Overview40-49
        • [C][2] : Rule 4.12(b)—CPOs to Pools with Limited Commodity Interest Trading40-50
        • [C][3] : Rule 4.12(c)—CPOs to Exchange-Traded Pools40-52
        • [C][4] : CFTC Harmonization Proposal for Registered CPOs of Registered Investment Companies40-53
    • § 40:5.3 : NFA Regulation40-55
      • [A] : Overview40-55
      • [B] : CPO Registration40-55
        • [B][1] : Firm Application40-55
        • [B][2] : Principal and Associated Person Applications40-56
        • [B][3] : Identifying Principals40-57
        • [B][4] : Identifying Associated Persons40-57
      • [C] : CPO Compliance Policies and Procedures40-60
      • [D] : Prohibition from Doing Business with Non-NFA Members40-61
      • [E] : Annual Compliance Review40-61
  • § 40:6 : CTA Status and Regulation40-62
    • § 40:6.1 : Overview40-62
    • § 40:6.2 : CTA Exemptions from Registration40-63
      • [A] : CFTC Rule 4.14(a)(8)—Investment Advisers Not Primarily Engaged in CTA Activities40-63
      • [B] : Statutory CTA Exemptions—Sections 4m(1) and 4m(3)40-64
    • § 40:6.3 : Rule 4.7—Partial Exemption for CTAs to “Qualified Eligible Persons”40-65
      • [A] : Overview40-65
      • [B] : QEP Definition40-66
      • [C] : Disclosure40-68
      • [D] : Recordkeeping40-68
Chapter 41: Appendix A: Investment Company Act of 1940
Chapter 42: Appendix B: Title 17: Commodity and Securities Exchanges
Chapter 43: Table of Authorities
Chapter 44: Index to Mutual Funds and Exchange Traded Funds Regulation

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