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SEC Issues Final "Fund of Funds" Rules

June 29, 2006

By Investment Management Practice Group

On June 20, 2006, the Securities and Exchange Commission adopted three new rules under the Investment Company Act of 1940 (the “Act”) addressing “fund of funds” arrangements. New Rules 12d1-1, 12d1-2 and 12d1-3 (the “Fund of Funds Rules”), address unaffiliated fund of funds arrangements as well as affiliated fund of funds arrangements. Over the years, the SEC has issued several types of orders granting exemptive relief in these areas under certain conditions. These new rules essentially codify these exemptive orders. In addition, the SEC adopted changes to the prospectus disclosure forms for open-end and closed-end funds of funds to require that the expenses of acquired funds (in aggregate form) be shown as a separate line item in the prospectus fee table of the acquiring fund.

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