SEC Adopts New Rules And Amendments For Fund Of Funds Investments And Disclosure
Washington, D.C. - The Securities and Exchange Commission adopted three new rules and amendments to several forms under the Investment Company Act that address "fund of funds arrangements." The new rules will codify several exemptions from the Act that the Commission has issued over the years, and will provide greater transparency of expenses investors in these arrangements pay.
Fund of funds arrangements are created when a mutual fund or other type of investment company invests in shares of another investment company. The Investment Company Act imposes restrictions on these arrangements to prevent abusive "pyramiding" schemes.
The Commission is today adopting two types of regulatory changes.
- Three new rules codify exemptions the Commission has issued by order over the past decade in circumstances that do not create risks for the fund or investors.
Funds and their advisers will no longer have to file routine exemptive applications in these circumstances, eliminating the need for SEC staff review of the applications and allowing staff more time to focus on exemptive applications that present new issues.
- Amendments to Forms N-1A, N-2, N-3, N-4, and N-6 require a registered fund that invests any of its assets in another fund, including an unregistered fund such as a hedge fund, to disclose in its fee table the cumulative amount of expenses charged by the fund and any fund in which it invests. Currently, the fee table information does not generally include information about fees and expenses charged by the funds in which the fund of funds invests. The increased transparency of fund of funds expenses is intended to allow investors to understand and more easily to compare the relative costs of different fund of funds arrangements.
New rules 12d1-1, 12d1-2, and 12d1 3 will become effective on July 31, 2006.
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