New Rules, Proposed Rules, Guidance and Alerts –

PROPOSED RULES –

SEC Proposes New Fund-of-Funds Rule –

On December 19, 2018, the SEC proposed new Rule 12d1-4 under the Investment Company Act of 1940, which, if adopted, would permit a fund to acquire shares of another fund in excess of the limits of Section 12(d)(1) of the 1940 Act without obtaining a separate exemptive order from the SEC and would expand the types of permissible fund-of-funds arrangements. In connection with the new rule, the SEC would rescind current Rule 12d1-2 under the 1940 Act and most existing fund-of-fund exemptive orders granted under Section 12(d)(1) and would make certain amendments to Rule 12d1-1 and Form N-CEN.

Section 12(d)(1) of the 1940 Act generally prohibits any registered fund (the acquiring fund) from (1) acquiring more than 3% of another fund’s (the acquired fund’s) outstanding voting securities (the 3% Limit); (2) investing more than 5% of its assets in any one fund; and (3) investing more than 10% of its total assets in funds generally. These limits apply to both registered and unregistered funds with respect to their investments in a registered fund, and to a registered fund with respect to its investment in an unregistered fund. At present, many funds have obtained separate exemptive orders under Section 12(d)(1) to enable investments beyond these limitations. Proposed Rule 12d1-4 would implement a consistent regulatory framework for funds-of-funds.