Financial Product Fundamentals 11/07/17 Proofs 4th PLI's Complete Treatise Library (standard page size).fm Page i Thursday, October 12, 2017 4:03 PM

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ART LAW Art Law: The Guide for Collectors, , Dealers & Artists BANKING & COMMERCIAL LAW Asset-Based Lending: A Practical Guide to Secured Financing Equipment Leasing–Leveraged Leasing Hillman on Commercial Documentation Hillman on Documenting Secured Transactions: Effective Drafting and Litigation Maritime Law Answer Book BANKRUPTCY LAW Bankruptcy Deskbook Personal Bankruptcy Answer Book BUSINESS, CORPORATE & SECURITIES LAW Accountants’ Liability Anti-Money Laundering: A Practical Guide to Law and Compliance Antitrust Law Answer Book Broker-Dealer Regulation Conducting Due Diligence in a Securities Offering Consumer Answer Book Corporate Compliance Answer Book Corporate Legal Departments: Practicing Law in a Corporate Political Activities Deskbook Corporate Whistleblowing in the Sarbanes-Oxley/Dodd-Frank Era 11/07/17 Covered Bonds Handbook Cybersecurity: A Practical Guide to the Law of Cyber Risk Derivatives Deskbook: Close-Out Netting, Risk Mitigation, Litigation Deskbook on Internal Investigations, Corporate Compliance, and White Collar Issues Directors’ and Officers’ Liability: Current Law, Recent Developments, Emerging Issues Doing Business Under the Foreign Corrupt Practices Act EPA Compliance and Enforcement Answer Book Exempt and Hybrid Securities Offerings Fashion Law and Business: Brands & Retailers Financial Institutions Answer Book: Law, Governance, Compliance Financial Product Fundamentals: Law, Business, Compliance Financial Services Mediation Answer Book Financial Services Regulation Deskbook Financially Distressed Companies Answer Book Global Business Fraud and the Law: Preventing and Remedying Fraud and Corruption

Proofs Fund Regulation Initial Public Offerings: A Practical Guide to Going Public Insider Trading Law and Compliance Answer Book and Management M&A Deskbook International Corporate Practice: A Practitioner’s Guide to Global Success Investment Adviser Regulation: A Step-by-Step Guide to Compliance and the Law Life at the Center: Reflections on Fifty Years of Securities Regulation Mergers, Acquisitions and Tender Offers: Law and Strategies Mutual Funds and Exchange Traded Funds Regulation 4th Outsourcing: A Practical Guide to Law and Business Privacy Law Answer Book Funds: Formation and Operation Proskauer on Privacy: A Guide to Privacy and Data Law in the Information Age Deskbook: Complying with Federal Governance & Disclosure Requirements SEC Compliance and Enforcement Answer Book Securities Investigations: Internal, Civil and Criminal PLI's Complete Treatise Library (standard page size).fm Page ii Thursday, October 12, 2017 4:03 PM

Securities Law and Practice Handbook The Securities Law of Public Securities Litigation: A Practitioner’s Guide Social Media and the Law Soderquist on and Practice Sovereign Wealth Funds: A Legal, Tax and Economic Perspective A Starter Guide to Doing Business in the United States Technology Transactions: A Practical Guide to Drafting and Negotiating Commercial Agreements Variable Annuities and Variable Regulation COMMUNICATIONS LAW Advertising and Commercial Speech: A First Amendment Guide Sack on Defamation: Libel, Slander, and Related Problems Telecommunications Law Answer Book EMPLOYMENT LAW Employment Law Yearbook ERISA Benefits Litigation Answer Book Labor Management Law Answer Book ESTATE PLANNING AND ELDER LAW Blattmachr on Income Taxation of Estates and Trusts Estate Planning & Chapter 14: Understanding the Special Valuation Rules International Tax & Estate Planning: A Practical Guide for Multinational Investors Manning on Estate Planning New York Elder Law Stocker on Drawing Wills and Trusts 11/07/17 HEALTH LAW FDA Deskbook: A Compliance and Enforcement Guide Health Care Litigation and Risk Management Answer Book Health Care Mergers and Acquisitions Answer Book Medical Devices Law and Regulation Answer Book Pharmaceutical Compliance and Enforcement Answer Book IMMIGRATION LAW Fragomen on Immigration Fundamentals: A Guide to Law and Practice INSURANCE LAW Business Liability Insurance Answer Book Insurance Regulation Answer Book Reinsurance Law Proofs INTELLECTUAL PROPERTY LAW Copyright Law: A Practitioner’s Guide Faber on Mechanics of Patent Claim Drafting Federal Circuit Yearbook: Patent Law Developments in the Federal Circuit How to Write a Patent Application Intellectual Property Law Answer Book Kane on Trademark Law: A Practitioner’s Guide 4th Likelihood of Confusion in Trademark Law Patent Claim Construction and Markman Hearings Patent Law: A Practitioner’s Guide Patent Licensing and Selling: Strategy, Negotiation, Forms Patent Litigation Pharmaceutical and Biotech Patent Law Post-Grant Proceedings Before the Patent Trial and Appeal Board Substantial Similarity in Copyright Law Trade Secrets: A Practitioner’s Guide PLI's Complete Treatise Library (standard page size).fm Page iii Thursday, October 12, 2017 4:03 PM

LITIGATION American Arbitration: Principles and Practice Class Actions and Mass Torts Answer Book Electronic Discovery Deskbook Essential Trial Evidence: Brought to Life by Famous Trials, Films, and Fiction Expert Witness Answer Book Evidence in Negligence Cases Federal Bail and Detention Handbook How to Handle an Appeal Medical Malpractice: Discovery and Trial Product Liability Litigation: Current Law, Strategies and Best Practices Sinclair on Federal Civil Practice Trial Handbook REAL ESTATE LAW Commercial Ground Leases Friedman on Contracts and Conveyances of Real Property Friedman on Leases Holtzschue on Real Estate Contracts and Closings: A Step-by-Step Guide to Buying and Selling Real Estate Net Leases and Sale-Leasebacks TAX LAW The Circular 230 Deskbook: Related Penalties, Reportable Transactions, Working Forms The Corporate Tax Practice Series: Strategies for Acquisitions, Dispositions, Spin-Offs, Joint Ventures, Financings, Reorganizations & Restructurings Foreign Account Tax Compliance Act Answer Book

11/07/17 Internal Revenue Service Practice and Procedure Deskbook International Tax & Estate Planning: A Practical Guide for Multinational Investors International Tax Controversies: A Practical Guide International Trade Law Answer Book: U.S. Customs Laws and Regulations Langer on Practical International Tax Planning The Partnership Tax Practice Series: Planning for Domestic and Foreign Partnerships, LLCs, Joint Ventures & Other Strategic Alliances Private Clients Legal & Tax Planning Answer Book Transfer Pricing Answer Book GENERAL PRACTICE PAPERBACKS Anatomy of a Mediation: A Dealmaker’s Distinctive Approach to Resolving Dollar Disputes and Other Commercial Conflicts Attorney-Client Privilege Answer Book Drafting for : Concepts, Deals, and Documents Pro Bono Service by In-House Counsel: Strategies and Perspectives Proofs Smart Negotiating: How to Make Good Deals in the Real World Thinking Like a Writer: A Lawyer’s Guide to Effective Writing & Editing Working with Contracts: What Law School Doesn’t Teach You

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Second Edition 11/07/17 VOLUME 1

Edited by Clifford E. Kirsch

Proofs Incorporating Release #10 November 2017 #209126 4th

Practising Law Institute New York City #38880 This work is designed to provide practical and useful information on the subject matter covered. However, it is sold with the understanding that neither the publisher nor the author is engaged in rendering legal, accounting, or other professional services. If legal advice or other expert assistance is required, the services of a competent profes- sional should be sought.

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Legal Editor: Carol Benedicto

Copyright © 1999, 2000, 2001, 2002, 2003, 2004, 2005, 2006, 2007, 2008, 2009, 2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017 by Practising Law Institute. Proofs All rights reserved. First edition 1999. Second edition 2012.

Printed in the United States of America. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form by any means, electronic, mechanical, photocopying, recording, or otherwise, without

4th the prior written consent of Practising Law Institute.

LCCN: 99-64003 ISBN: 978-1-4024-1898-3 For My Wife, Teri—Thank you for being so special. I love you. And for My Mom and Dad—With Love and Appreciation. 11/07/17 Proofs 4th 4th Proofs 11/07/17 About the Editor

Clifford E. Kirsch (editor, author of chapter 5, and co-author of chapters 6 and 20) is a partner at Eversheds Sutherland in New York City. Previously, he was Vice President and Senior Corporate Counsel at the Prudential Insurance Company of America. Prior to that, he was first vice president and associate general counsel at Paine Webber’s subsidiary. From 1985 to 1994, he was on the Staff of the U.S. Securities and Exchange Commission, Division of , in Washington, D.C. At the SEC, he held several positions, including Assistant Director in the Office of Insurance Products, and was a recipient of the Manuel F. Cohen Younger Lawyer Award. Mr. Kirsch teaches at the University of Pennsylvania Law School, and previously taught at Georgetown University Law Center. He serves as chair for two annual American Law Institute/American Bar Association Course Offerings: Investment Management Regulation

11/07/17 and Investment Adviser Regulation. He also is Chairman of the NASD’s Variable Insurance Products Committee. Mr. Kirsch has written on various topics relating to investment companies, investment advisers, and the securities activities of insurance companies and . His publications include: Regulation, Third Edition (Practising Law Institute 2011); Broker- Dealer Regulation, Second Edition (Practising Law Institute 2011); Investment Adviser Regulation, Third Edition (Practising Law Institute 2011); Variable Annuities & Variable Life Insurance Regulation, Second Edition (Practising Law Institute 2012); The Financial Services Revolution: Understanding the Changing Roles of Banks, Mutual Funds and Insurance Companies (Irwin 1996); Regulation and Distribution of Variable Insurance Products (Aspen 1999); and Proofs Investment Management Regulation (Carolina Academic Press 1998), a law school casebook. 4th

(Fin. Prod. Fund., Rel. #10, 11/17) ix 4th Proofs 11/07/17 About the Contributors

Lee Ann Anderson (Chapter 24) is a finance partner in Ashurst LLP’s New York and Washington, D.C. offices. Ms. Anderson’s practice covers publicly and privately offered structured notes, including exchange-traded notes, and certificates of deposits for issuers and investment banks, including rates-, commodities-, equity-, and propriety index-linked products. Ms. Anderson has extensive and equity capital markets experience in the United States and advises on the creation of propriety indices. Prior to joining Ashurst, Ms. Anderson was a Special Counsel at Sullivan & Cromwell LLP for nine years, where she similarly advised on structured notes, exchange- traded notes, and proprietary indices. Prior to that, Ms. Anderson was associated with Cleary, Gottlieb, Steen & Hamilton LLP for three years and Sullivan & Cromwell for over seven years. Ms. Anderson has extensive experience in and other transactions, including derivatives and products transac-

11/07/17 tions, and structured complex financial products and transactions. She also has substantial experience in public and private mergers and acquisitions transactions and general corporate matters.

Adrienne Atkinson (Chapter 15) is a partner in the Asset Manage- ment Group of Willkie Farr & Gallagher LLP, focusing on private funds. She is a graduate of Oberlin College (B.A., with highest honors, 1975) and received an M.A. from Yale University in 1978. She received a J.D. from the New York University School of Law (magna cum laude, 1993).

Steven B. Boehm (Chapter 18) is a senior partner in the Financial Services Group of Eversheds Sutherland. He concentrates his practice Proofs in the corporate and securities area, with an emphasis on exempt arrangements and asset management, including matters under the jurisdiction of the Securities and Exchange Commission (SEC). Mr. Boehm regularly represents national and regional financial service organizations in connection with the establishment and operation of tax-favored and arrangements, open- and closed-

4th end investment companies, hedge funds, and insurance company separate accounts; compliance with and exemptions from the Act of 1940; and the organization and day-to- day operation of investment advisers and broker-dealers. Mr. Boehm maintains a leading practice in the college tuition savings area,

(Fin. Prod. Fund., Rel. #10, 11/17) xi FINANCIAL PRODUCT FUNDAMENTALS

working with states sponsoring “529 plans” and representing financial institutions administering those plans. A frequent panelist on programs dealing with current issues in securities regulation, Mr. Boehm has also written extensively on SEC-related matters. Mr. Boehm served with the SEC from 1978 to 1983. In addition to his enforcement experience, he served in the General Counsel’s office and was a member of the Executive Staff, holding the of Legal Counsel to the Commissioner from 1982 to 1983. Mr. Boehm received his B.A., cum laude, from Rutgers College in 1975 and his J.D. from Rutgers Law School in 1978 where he was honored as a Phillip J. Levin Scholar.

Gary M. Brown (Chapter 26) is the chief executive officer of CMG Life Services Inc., which he joined after a thirty-one-year legal career during which his practice centered on advising public companies and their officers and directors on , securities, and other compliance issues. From 1994 until joining CMG in 2011, Mr. Brown taught corporate and securities law at the Vanderbilt University School of Law. He is a frequent instructor at securities programs for the Practising Law Institute and co-chairs two of PLI’s national securities programs,

11/07/17 Understanding the Securities Laws and Securities Filings. While in private practice, he was listed in both Best Lawyers in America and Chambers—America’s Leading Business Lawyers. During 2002, Mr. Brown served as Special Counsel (Minority) to the United States Senate’s Committee on Governmental Affairs (and also worked with that committee’s Permanent Subcommittee on Investigations (PSI)) in the investigation into the causes of the collapse of Enron Corp. During 2010, he was retained by PSI to assist the subcommittee in its investigation, “Wall Street and the Financial Crisis,” and related televised hearings. While on those assignments, he provided advice on aspects of both the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Wall Street Reform and Consumer Protection Act as those pieces of legislation were being debated in the Senate. Proofs Mr. Brown has been a frequent speaker and author on areas including corporate governance, ethics, obligations of corporate directors, and the reporting and disclosure obligations of public companies. Mr. Brown is the author of PLI’s treatise, Securities Law and Practice Deskbook (previously titled Soderquist on the Securities Laws). His other publications include PLI’s Guide to the SEC’s

4th Executive Compensation and Related Party Transaction Rules (Practis- ing Law Institute 2007); The Implications of the U.S. Sarbanes-Oxley Act (Oxford Press 2004) (presented to an international corporate governance symposium in Berlin co-sponsored by the Japanese-German Center Berlin and the Max Planck Institute for Foreign Private and

xii About the Contributors

Private International Law); “Ethics: It’s Not Just For Lawyers Anymore,” The Corporate Compliance and Regulatory Newsletter, Volume 2, No. 8 (April 2005); “Resisting Temptation—New Sentencing Guidelines Prod Companies to Take Ethics More Seriously,” Legal Times (November 15, 2004); and “Senate Investigator to Enron’s Lawyers: It’s Not Over,” Corporate Board Member (Special Legal Issue, Summer 2003).

Jesse M. Brush (Chapter 23) is an associate with Cleary Gottlieb Steen & Hamilton LLP. Mr. Brush’s practice focuses on capital markets and corporate transactions. Mr. Brush joined the firm in 2010. He received a J.D. degree from Yale Law School in 2009, where he was Notes Editor of the Yale Law Journal and Executive Editor of the Yale Journal of International Law. He received an undergraduate degree, summa cum laude, from Dartmouth College in 2006. From 2009 to 2010, he served as law clerk to the Honorable Nancy Gertner of the U.S. District Court for the District of Massachusetts. Mr. Brush is a member of the bars in New York and Massachusetts. His native language is English, and he is proficient in Spanish.

Kevin F. Cahill (Chapter 12) is a partner with Dechert LLP, where he represents investment advisers and investment companies in all aspects

11/07/17 of their organization, registration, operation, acquisition, and liquida- tion, and serves as counsel to independent directors of investment companies. He counsels clients in a wide range of regulatory, compli- ance and business matters. Mr. Cahill has authored numerous publications and articles in the U.S. and international asset management field, and has participated in industry group panels and educational events. Some of Mr. Cahill’s engagements and experience include: advising investment advisers on a broad range of investment advisory products and services, including separately managed accounts, wrap fee programs, and model programs; advising mutual fund independent trustees on , conflicts and general fiduciary issues, and director and officer liability insurance issues; advising financial institutions on Proofs privacy regimes and cybersecurity matters, including working with clients to develop information security programs, data privacy protocols, and related compliance/audit programs; and representing funds, their boards and advisers in corporate acquisition and transactional matters. Mr. Cahill graduated from the University of Illinois, with Distinc- tion, and the University of San Diego School of Law, cum laude, where

4th he was a member of the San Diego Law Review and Order of the Coif. He is a member of the California bar.

(Fin. Prod. Fund., Rel. #10, 11/17) xiii FINANCIAL PRODUCT FUNDAMENTALS

Brenden P. Carroll (Chapter 9) is a senior associate in Dechert LLP’s Financial Services Group. Mr. Carroll’s practice focuses on counseling investment advisers, open-end and closed-end investment companies and other financial institutions in regulatory, corporate, and com- pliance matters. During law school, Mr. Carroll served as a law clerk to a Commissioner of the U.S. Securities and Exchange Commission. Mr. Carroll graduated from the Georgetown University Law Center (J.D.) and the University of Colorado at Boulder (B.A., Economics). He is a member of the Virginia bar and the District of Columbia bar.

Stephen T. Cohen (Chapter 9) is a partner in Dechert LLP’s Financial Services and Investment Management Group. Mr. Cohen’s practice focuses on the asset management industry. He primarily represents U.S. registered investment companies and their boards of direc- tors with regard to a wide variety of regulatory, compliance, and securities law issues. He has extensively counseled clients in connec- tion with registering and reorganizing investment companies. He has also assisted clients in obtaining exemptive relief from various provisions of the Investment Company Act of 1940. Mr. Cohen graduated from the American University Washington College of Law (J.D.) and the University of Florida (B.A.). He is a member of the

11/07/17 Maryland bar and the District of Columbia bar.

Douglas P.Dick (Chapter 9) is a partner in the Financial Services Group at Dechert LLP in Washington, D.C. His practice includes advising registered open- and closed-end investment companies, independent investment company trustees, offshore funds and registered investment advisers in regulatory, corporate, and business matters. Mr. Dick graduated from The American University (B.A., cum laude, 1990) and Georgetown University Law Center (J.D., cum laude, 1995).

Susan C. Ervin (Chapter 13) is senior counsel to Davis Polk & Wardwell LLP, specializing in advising financial institutions, invest- ment managers, end users, and other participants concerning Proofs derivatives transactions. Prior to joining Davis Polk, Ms. Ervin served as a Senior Derivatives Adviser and Attorney Fellow at the U.S. Securities and Exchange Commission, where she helped develop new regulatory approaches to the derivatives markets. Ms. Ervin also served for ten years as Deputy Director and Chief Counsel of the Division of Trading and Markets of the Commodity Futures Trading Commission

4th (CFTC). During that time, she was the principal legal advisor for the agency’s investment management, broker, and market regulatory program, reviewed new derivative products and developed and interpreted rules governing money managers and commodity profes- sionals. Ms. Ervin graduated from Mount Holyoke College (B.A.,

xiv About the Contributors

magna cum laude) and Rutgers School of Law (J.D., with High Honors). From 1991 to 1992, she was an adjunct professor of law at Georgetown University Law Center, and from 1994 to 1996 a lecturer at George Washington University School of Business and Public Management. She is a frequent speaker, commentator, and author on derivatives and investment management issues.

Wendell M. Faria (Chapter 7) is of counsel at Paul Hastings LLP, in Washington, D.C., where he specializes in the law of investment management, particularly on matters involving the federal securities laws. Mr. Faria worked at the Securities and Exchange Commission in various legal capacities from 1987 to 1994. Before leaving the Commission, he served as the Deputy Chief and the Acting Chief of the Office of Insurance Products in the SEC’s Division of Investment Management. Mr. Faria speaks frequently at conferences on invest- ment management issues, and is an Adjunct Professor of Law at the Georgetown University Law Center. He received his B.B.A. degree from the Bernard M. Baruch College of the City University of New York in 1983, and his J.D. degree from the University of California at Berkeley, Boalt Hall School of Law in 1987. Mr. Faria is a member of the District of Columbia bar. 11/07/17 Marshall D. Feiring (Chapters 14 & 22) is counsel in the New York office of Sidley Austin LLP. His practice focuses on real estate mortgage investment conduits, regulated investment companies, and real estate investment trusts. Prior to joining the firm, Mr. Feiring was a Senior Technician Reviewer in the IRS Office of Chief Counsel. While with the IRS, he authored or reviewed private letter rulings and revenue rulings addressing a broad range of issues concerning mortgage pass-through trusts, REITs, REMICs, partnerships, estates and financial products. He also authored and reviewed securitization- focused income tax regulations, including the taxable mortgage pool regulations and regulations concerning REMIC residual interests. Proofs Adam E. Fleisher (Chapters 1 & 23) is a partner with Cleary Gottlieb Steen & Hamilton LLP. Mr. Fleisher is a corporate and securities lawyer whose practice focuses on a variety of corporate finance transactions. He has extensive experience across a number of areas, including: international and U.S. capital markets offerings, including IPOs, convertible offerings, rights offerings, block trades and high

4th bond offerings; liability management transactions, including tender offers, exchange offers, consent solicitations and open market repurchases; private equity firm structuring and private equity M&A; syndicated lending; and securities and loan trading.

(Fin. Prod. Fund., Rel. #10, 11/17) xv FINANCIAL PRODUCT FUNDAMENTALS

Mr. Fleisher is a member of the Practical Law Company’s U.S. and has served as Secretary of the Financial Reporting Committee of the Association of the Bar of the City of New York. He has authored and co-authored a number of publications, including “Selling Shares in a Newly Public Company”; “Communication with Financial Analysts and Related Disclosure Issues”; “Alternatives to Traditional Securities Offerings”; “Revised Rule 144 and Registration Rights: Market Practice Two Years On”; “The Mechanics of A/B Exchange Offers”; “Regulation S Selling and Transfer Restrictions: A Basic User’s Guide”; “Recent Cases Address Important Section 16 -Swing Issues”; “Regulation M: What the Deal Team Needs to Know”; and “The Deal Team’s Guide to Regulation M.” Mr. Fleisher is a frequent speaker on a variety of legal topics, including at the Practising Law Institute (PLI). He is also recognized as a leading capital markets lawyer by The Legal 500 U.S. Mr. Fleisher joined the firm’s New York office in 2000 and was elected partner in 2008. He was resident in the firm’s London office from 2001 to 2005, when he returned to New York. Mr. Fleisher received a J.D. degree from Yale Law School and a B.A. from Harvard University. He is a member of the bar in New York.

11/07/17 Professor Tamar Frankel (Chapter 4) received her LL.M. and S.J.D. degrees from Harvard Law School. She teaches at Boston University School of Law. She authored a two-volume treatise, Securitization (1991) and a four-volume treatise, The Regulation of Money Managers (1978, 1980), both published by Aspen Law & Business (formerly Little, Brown & Co). Her scholarship and teaching cover the laws of trust, , banking, insurance, mutual funds, funds, securitization, the securities markets, and issues concerning the Internet. Professor Frankel was a Visiting Scholar at the Securities and Exchange Commission, Washington, D.C., a Guest Scholar at the Brookings Institution, Washington, D.C., and a visiting professor at the Harvard Law School, Harvard Business School, and University of California Law School at Berkeley. She served as consultant to Bankers Proofs , New York, and as a member of the Advisory Committee, American Law Institute, The Prudent Rule, Restatement of Trusts (Third). She is a Faculty Fellow of the Berkman Center for Internet & Society at the Harvard Law School.

Eric C. Freed (Chapter 10) is counsel in the New York office of

4th Eversheds Sutherland. He focuses his practice on federal securities laws, particularly the Investment Company Act of 1940 and the Investment Advisers Act of 1940. He advises mutual fund and investment adviser clients on a wide range of legal, regulatory

xvi About the Contributors

and compliance matters. His prior legal experience includes serving as Senior Counsel, Securities, for a Connecticut financial services company offering variable insurance products and mutual funds. He was primarily responsible for the continued registration and compli- ance of the company’s management investment companies, both those sold in the retail market and those used as vehicles for the investment of variable annuity and variable life insurance assets. Prior to that position, Mr. Freed was a Special Counsel and Senior Attorney for the Division of Investment Management of the SEC, where his responsibilities included reviewing and preparing no-action letters and rulemaking releases regarding investment companies and investment advisers.

John H. Grady (Chapter 27) is a partner in DLA Piper and concentrates his practice on the investment management industry. He works with investment companies (including mutual funds and interval funds), commodity pools, private funds, real estate investment trusts and business development companies, among other pooled vehicles. He also counsels investment advisers, broker-dealers, transfer agents and operators on a range of issues, from fund formation to mergers and acquisitions involving these highly regulated firms.

11/07/17 With thirty years of investment management experience, Mr. Grady has overseen multiple securities offerings for funds and other investment vehicles, and led or managed the development and operation of various new investment products and services. He has accomplished several fund “adoptions” and reorganizations, and has handled numerous M&A transactions involving investment advisers, broker-dealers, and investment funds. His experience ranges from structuring and negotiating such transactions to handling shareholder and regulatory approvals, as well as associated governance, financial, public relations, and integration issues. Most recently, he was the Senior Vice President and Chief Regulatory Officer of Aretec Corpora- tion, the parent company of Cetera Financial Group, one of the nation’s largest independent networks. Mr. Grady Proofs helped the company form or acquire numerous regulated subsidiaries and affiliates, including multiple investment companies and advisers, as well as several FINRA member firms. Mr. Grady has served many professional associations during the course of his career. Currently, he serves as President of the Alternative & Direct Investment Securities Association, as well as the Chair of its

4th Legislative and Regulatory Committee. Mr. Grady received his B.A., magna cum laude, Phi Kappa, from Colgate University, and his J.D. from the University of Pennsylvania Law School.

(Fin. Prod. Fund., Rel. #10, 11/17) xvii FINANCIAL PRODUCT FUNDAMENTALS

Robert W. Helm (Chapter 12) is a partner with Dechert LLP, and a leader of the firm’s Financial Services Practice Group. He graduated from Stanford University (A.B., with distinction, 1979), and Stanford Law School (J.D., 1982). He joined Dechert in 1984, following two years as a researcher at the European University Institute in Florence, Italy. He was a Fulbright-Hays Direct Exchange Fellow to Italy in 1982–1983. In 1990, he spent several months as a visiting lawyer with a Luxembourg law firm. Mr. Helm represents investment companies, investment advisers, insurance companies, broker-dealers, and other institutions in regulatory and general corporate matters. He has acted as a consultant to foreign governments and regulatory agencies on issues relating to securities and investment management markets and their regulation. Mr. Helm has lectured on securities law topics in the United States and Europe. His publications include “Self-Directed Employee Benefit Plans and Private Investment Companies: Unraveling PanAgora” (The Investment Lawyer, Mar. 1995); “The U.S. Market for U.K. Companies” (Journal of International Banking Law, Oct. 1995); and “ Funds” (Financial Services 2000, Dow Jones Irwin, 1996). He is a member of securities and commodities law committees of the American Bar Association, the

11/07/17 District of Columbia Bar Association, the International Bar Associa- tion. He is also a member of the State Bar of California, the New York State Bar, and the District of Columbia Bar.

Joon Hur (Chapter 23) is an associate with Cleary Gottlieb Steen & Hamilton LLP. Mr. Hur’s practice focuses on corporate and finan- cial transactions. Mr. Hur joined the firm in 2006. He received a J.D. degree from the University of Pennsylvania Law School in 2006, a master’s degree from the Massachusetts Institute of Technology in 1999, and an undergraduate degree, Tau Beta Pi, from the Massachusetts Institute of Technology in 1998. Mr. Hur is a member of the Bar of New York. He is fluent in Korean. Proofs Dodie Kent (Chapter 20) is a partner in the New York office of Eversheds Sutherland. With more than twenty years of experience as corporate counsel in the financial services industry, Ms. Kent advises on product design, marketing, and administrative issues as they relate to variable and fixed life insurance and annuity products. She also has particular experience counseling on related regulatory compliance and

4th enforcement issues. Ms. Kent focuses on many novel and complex insurer initiatives, including the de-risking of legacy product offerings; the design and regulation of index-linked ; issues related to the use of volatility management; and the simplification of variable

xviii About the Contributors

annuity disclosure. Prior to joining Eversheds Sutherland, Ms. Kent served as Vice President, Lead Director, and Associate General Counsel in the Insurance Practice Group of one of the world’s leading insurance and asset management groups. There, she served as the company’s principal legal securities advisor regarding its variable and fixed life and annuity product lines. Ms. Kent has recently been recognized by The Legal 500 United States in the area of insurance: non-contentious (2016). Ms. Kent received her B.A. from Gettysburg College and her J.D. from New York Law School.

Laurin Blumenthal Kleiman (Chapter 8) is a partner in the New York office of Sidley Austin LLP. Ms. Kleiman is experienced in various aspects of investment company representation, including creation and registration of open-end and closed-end funds and unit investment trusts, offshore funds, compliance matters and mutual fund mergers, acquisitions, and reorganizations. She also has advised both foreign and domestic investment advisers in connection with federal and state investment adviser regulation. Ms. Kleiman received her B.A. from Vanderbilt University in 1980 and her J.D. from the Vanderbilt University School of Law in 1983.

Michael B. Koffler (Chapter 18) is a partner at Eversheds Sutherland 11/07/17 where he regularly counsels clients on multi-tiered investment products, including 529 Plans, variable annuities, variable life insurance, separate accounts and mutual funds. In his practice, Mr. Koffler counsels clients on how to comply with the Securities Exchange Act of 1934, NASD Rules, MSRB Rules, the Investment Advisers Act of 1940, and state blue sky laws and regulations. He frequently advises broker-dealers, investment advisers, insurance companies, banks and state instrumentalities on the distribution of 529 Plans, which typically involves providing advice regarding distribu- tion channels, money flow issues, account opening and transaction approval obligations, sales practices, advertising, financial, operational and reporting requirements, sales contests, registration, compensation,

Proofs books and records, supervision, continuing education and training. Mr. Koffler has written multiple articles on 529 Plans and has spoken at industry conferences, including a regional summit on 529 Plans sponsored by the MSRB, regarding compliance with the securities laws governing these investment products. Prior to joining Eversheds Sutherland, Mr. Koffler spent two years on the staff of the SEC in the Division of Investment Management, 4th where he reviewed registration statements, proxy filings, exemptive applications and requests for no-action relief regarding variable insurance products.

(Fin. Prod. Fund., Rel. #10, 11/17) xix FINANCIAL PRODUCT FUNDAMENTALS

Mr. Koffler earned his J.D. from the University of Pennsylvania and his B.S., summa cum laude, from the State University of New York at Binghamton.

Robert M. Kreitman (Chapter 22) is a tax partner in the New York office of Sidley Austin LLP, where he has focused on the structured finance, securitization, financial products, and derivative areas since 1987. Mr. Kreitman’s principal areas of experience include residential and -backed securitization, asset- backed securitization and structured finance, including the structuring of debt repackagings, insurance-linked securities, distressed asset funds, credit- swaps, and synthetic . Mr. Kreitman represents a wide variety of clients, including JP Morgan Chase, Deutsche , Citigroup, Bank of America, Goldman Sachs, Morgan Stanley, , GECC, Aon, Mass Mutual, USAA, Swiss Re, Chrysler, GMAC, and Ford. He also represents numerous non-U.S. financial institutions, including Norinchukin Bank, RBS, National Australia Bank, HSBC, Natixis, and Barclays Bank plc. Mr. Kreitman is a co-author of the Little, Brown and Company book on mortgage-backed securities. He was also the special tax counsel to the Resolution Trust Company (RTC) on over $100 billion

11/07/17 of MBS securitization transactions in the early 1990s. More recently, he served as the senior U.S. tax advisor to (i) Bank of America and Washington Mutual on their respective covered bond programs, (ii) the lead managers on the HBOS Treasury Services plc UK covered bond offering (IFLR 2004 Securitization Deal of the Year), (iii) Banc One Capital Markets on the GMACM Home Equity Loan Trust 2002-HE3 transaction (ASR and IDD 2002 Deal of the Year in the “Most Innovative Structure” category), and (iv) Ford Credit on the $5 Billion Ford Credit Floorplan Master Owner Trust A, Series 2001-1 and 2001-2 (IDD 2001 Deal of the Year). Mr. Kreitman received his B.A. from Yeshiva University, his J.D. from Georgetown University Law Center, and his LL.M. in Taxation from New York University School of Law. Proofs Joyce E. Larson (Chapter 8) is a Compliance Project Specialist in the New York office of Sidley Austin LLP. Ms. Larson received an M.B.A. in Finance from the New York University Stern School of Business, an M.P.A. in National Security Studies from New York University, and a B.A. in History from the University of Washington. 4th Scott J. Lederman (Chapter 11) is the Managing Director at Grosvenor Capital Management, L.P., a firm specializing in creating and managing investment programs utilizing strategies for marketable securities. Prior to joining Grosvenor in 1998,

xx About the Contributors

Mr. Lederman was, over five years, successively the General Counsel and Chief Operating Officer of S.A.C. Capital Advisors, LLC, a multi-strategy manager in Stamford, Connecticut. Mr. Lederman has practiced law since June 1982 and, before join- ing SAC, was a partner in the Chicago law firm of Coffield Ungaretti & Harris which he joined in 1988. He received a J.D., cum laude, from the University of Chicago in 1982, and an M.B.A. in Finance and a B.S., magna cum laude, in Economics from The Wharton School of the University of Pennsylvania in 1979 and 1978, respectively. Mr. Lederman is a member of the Illinois and New York bars.

Jack W. Murphy (Chapter 9) is a partner of Dechert LLP and joined the firm in 1997 directly from the Securities and Exchange Commission, where he had served as Associate Director and Chief Counsel of the Division of Investment Management since 1994. In this role, he supervised the office primarily responsible for interpreting and establishing the Division’s positions under the Investment Company Act of 1940, and the Investment Advisers Act of 1940, as well as the Securities Act of 1933 and the Securities Exchange Act of 1934 as those statutes apply to investment companies. Mr. Murphy began his

11/07/17 career with the Division of Investment Management in 1985. He left the SEC in 1988 for private practice in New York, after which he served for a three-year period beginning in 1991 as Associate General Counsel of PaineWebber/Mitchell Hutchins Asset Management Inc. Mr. Murphy is a graduate of the State University of New York at Albany (B.A., 1980) and Boston College Law School (J.D., 1983).

James A. Overdahl (Chapter 19) is a partner in the Delta Strategy Group and formerly was a Vice President in NERA’s Securities and Finance Practice in Washington, D.C. Prior to joining NERA, he was Chief Economist and Director of the Office of Economic Analysis for the U.S. Securities and Exchange Commission (SEC). He served as principal economic advisor on policy, rulemaking, and litigation Proofs support, and supervised the SEC’s economics program. From 2002 to 2007, Dr. Overdahl served as Chief Economist and Director of the Office of the Chief Economist for the U.S. Commodity Futures Trading Commission (CFTC). He has testified before Congress on behalf of the SEC and CFTC, and provided staff support and briefings for members of the President’s Working Group on Financial Markets. He has

4th published extensively in leading economics and finance journals and has co-edited and co-authored, with Robert Kolb, four books in multiple editions, including Financial Derivatives: Pricing and Risk Management and Futures, Options, and Swaps. He graduated from St.

(Fin. Prod. Fund., Rel. #10, 11/17) xxi FINANCIAL PRODUCT FUNDAMENTALS

Olaf College in 1980 and received his Ph.D. from Iowa State University in 1984.

Harry S. Pangas (Chapter 2) is a partner at Eversheds Sutherland. Mr. Pangas regularly advises operating and investment companies on all aspects of the rules and regulations of the Securities and Exchange Commission, including disclosure, Rule 144A, Regulation G, short- swing profit rules, the Investment Company Act, Regulation FD, shareholder proposals under Rule 14a-8, and insider trading plans. He also has represented clients in connection with a variety of corporate transactional matters, including public and private equity and debt offerings, mergers, acquisitions and dispositions, and other strategic transactions. In particular, Mr. Pangas has developed a niche practice representing closed-end investment companies that have elected to be regulated as business development companies under the Investment Company Act. His practice also includes representing special purpose acqusition companies and other public vehicles for private equity investing. Mr. Pangas worked in the Division of Corporation Finance at the Securities and Exchange Commission in Washington, D.C., and was a member of the Division of Corporation Finance’s Shareholder

11/07/17 Proposal Task Force.

Amanda N. Persaud (Chapter 15) is a partner in Ropes & Gray’s private investment funds practice in New York. Her practice focuses on the formation, fundraising, and operation of U.S. and international private investment funds, including private equity funds, hedge funds, funds-of-funds, and other alternative asset classes such as real estate, special situations, mezzanine/distressed debt, and hybrid funds. Ms. Persaud has led numerous fund raises for prominent U.S. and international sponsors of private investment funds. She regularly advises on a wide range of governance, operational, and regulatory matters affecting sponsor clients. She has significant experience advis- ing sponsor clients in structuring and reorganizing private invest- Proofs ment funds, as well as assisting them with internal compensation and management arrangements. Ms. Persaud has negotiated and structured spin-outs of, strategic investments in, and sales of, alternative asset management businesses and regularly provides fund-related advice with respect to portfolio acquisitions and dispositions.

4th Kathryn C. Plunkett (Chapter 24) is an associate with Sullivan & Cromwell LLP. Ms. Plunkett’s practice focuses on securities. She earned her B.A. from the College of the Holy Cross, and her J.D. from Pace University School of Law.

xxii About the Contributors

Daniel A. Rabinowitz (Chapter 25) is a partner with Kramer Levin Naftalis & Frankel LLP. Mr. Rabinowitz’s practice focuses on transactional and regulatory advice in the insurance industry. His experience spans all types of transactional activity and regulatory matters affecting the insurance business, including mergers and acquisitions, capital markets, restructurings, securitization and struc- tured finance, reorganizations, reinsurance, corporate governance, and all aspects of NAIC and state regulatory oversight. He has extensive experience in mergers, acquisitions, divestitures and strategic invest- ments, including through the use of reinsurance; structured transac- tions and insurance-linked securities, such as catastrophe and mortality-index bonds, closed block securitizations and triple-X financings; representing clients with matters before state insurance regulators and providing regulatory advice in transactional contexts, including Form A, Form D, Form E, disclaimer of control, bulk reinsurance, and similar filings and approvals; public and private offerings of securities; reinsurance and alternative risk transfer; advising clients on insurance company distress and receivership situations; reorganizations such as demutualizations and Blue Cross conversions; and the intersection between insurance and related regulatory regimes, particularly in the context of diversified holding

11/07/17 company structures. Mr. Rabinowitz has been recognized in the area of “Insurance: non-contentious” by the 2011 Legal 500 U.S.

Peter M. Rosenblum (Chapter 21) is a partner in the Boston office of Foley Hoag LLP, where he counsels a broad range of clients in diverse industries concerning business and regulatory matters, financing strategies and structuring of corporate transactions. He is actively involved in the firm’s corporate and corporate finance practices, with an emphasis on public and private offerings of debt and equity, mergers and acquisitions, joint ventures and . Prior to entering the private practice of law, Mr. Rosenblum served as Law Clerk to Chief Justice G. Joseph Tauro of the Massachusetts Supreme Judicial Court. He graduated from Amherst College and Harvard Law Proofs School.

Alexandre V. Rourk (Chapter 16) is an associate in the Investment Management Group of Seward & Kissel LLP.He received a B.A., magna cum laude, from Duke University, and graduated from Washington and Lee University School of Law, where he was a Lead Articles

4th Editor for the German Law Journal.

Sara Sabour (Chapter 2) is an associate of Eversheds Sutherland LLP. Ms. Sabour counsels clients on a variety of corporate finance matters and securities and transactions, including structured

(Fin. Prod. Fund., Rel. #10, 11/17) xxiii FINANCIAL PRODUCT FUNDAMENTALS

products and public and private offerings. She also advises on corporate governance issues and matters relating to the establishment, opera- tion, and regulation of business development companies. Her previous experience includes serving as a law clerk for Fannie Mae, a legal intern for the Financial Industry Regulatory Authority and a judicial intern to the Honorable Judith N. Macaluso of the Superior Court of the District of Columbia, Civil Division. Ms. Sabour graduated from the University of California at Irvine, magna cum laude, and American University Washington College of Law, where she was Editor-in-Chief of the American University International Law Review. She is a member of the bars of New York and the District of Columbia.

Bart Sheehan (Chapter 14) is a partner in the New York office of Sidley Austin LLP. Mr. Sheehan focuses on the representation of issuers and underwriters of publicly and privately offered debt and equity securities, with an emphasis on companies in the energy and real estate industries, particularly real estate investment trusts. In addition to securities offerings, his practice includes consultation with clients regarding corporate governance matters and public company reporting obligations. Mr. Sheehan is also active in representing pooled investment entities, such as hedge funds and private equity partner-

11/07/17 ships and their sponsors.

Stuart M. Strauss (Chapter 17) is a partner in the New York office of Dechert LLP. Mr. Strauss advises investment companies and their independent directors, banks, and other financial institutions on matters pertaining to U.S. securities laws, particularly the Investment Company Act of 1940 and the Investment Advisers Act of 1940. Mr. Strauss has more than twenty-five years of corporate and securities legal experience, including three years as an attorney with the Securities and Exchange Commission. He devotes his practice to the representation of investment companies, independent directors of investment companies, banks, and other financial institutions. In addition, he is the author of “A Practical Guide to the Investment Proofs Company Act,” Merrill/Magnus/1993, “Trading Practices and Alloca- tion of Brokerage,” The Investment Company Regulation Deskbook (Aspen Law and Business 1997) and numerous articles on securities law matters. He graduated from the University of Pennsylvania’s Wharton School in 1975 and received a J.D. in 1978 from St. John’s University. He received an LL.M. in Taxation from Georgetown University in 1981. 4th Bibb L. Strench (Chapters 6 & 16) is a partner in the Corporate Transactions & Securities practice group of Thompson Hine LLP. He focuses on exchange-traded funds (ETFs), closed-end funds, mutual

xxiv About the Contributors

funds and investment advisers. Mr. Strench provides advice on regulatory, compliance, entity formation, auditor independence, corpo- rate governance and other issues related to the operation of the aforementioned businesses. He has experience with unique fund structures including funds with alternative investment strategies, faith-based restrictions and multi-tier levels. Mr. Strench began his career as a staff attorney in the Division of Investment Management of the U.S. Securities and Exchange Commission, where he was principally responsible for granting exemptive orders and responding to no-action and interpretive requests under the Investment Com- pany Act of 1940 and Investment Advisers Act of 1940. Mr. Strench is admitted to practice in the District of Columbia, Texas, and Washington. He received a B.A., magna cum laude, from Vanderbilt University, and a J.D. from the University of Virginia School of Law.

Rebecca Tabb (Chapter 1) is an associate of Cleary Gottlieb Steen & Hamilton LLP based in the New York office. Ms. Tabb’s practice focuses on corporate and financial transactions. Ms. Tabb joined the firm in 2009. She received a J.D. degree, Order of the Coif, from Stanford Law School, where she also was named the Nathan Abbott Scholar for graduating first in her law school class. Ms. Tabb also

11/07/17 received a master’s degree in Economics, with distinction, from University College London in 2006, and received an undergraduate degree, with honors and distinction, from Stanford University, where she was a member of Phi Beta Kappa. Ms. Tabb is a member of the Bar in New York.

Adam T. Teufel (Chapter 17) is a partner with Dechert LLP, where he regularly advises registered funds (including mutual funds, exchange-traded funds, and closed-end funds), their investment advisers, and their boards of directors on a wide range of corporate matters, such as the development and launch of new funds, regulatory compliance matters for existing funds, fund governance issues, and fund/adviser reorganizations and acquisitions. He routinely represents Proofs funds and advisers before the SEC in response to inquiries and examinations. Mr. Teufel has significant experience with exchange- traded funds (ETFs) and their advisers, including obtaining SEC exemptive relief, the launch of novel ETF products and advising on a wide range of operational and compliance issues unique to index and actively managed ETFs.

4th Mr. Teufel also represents broker-dealers (including registered fund distributors and private fund placement agents) and has extensive experience with the initial organization and registration of new broker- dealers, as well as ongoing registration, compliance, supervision,

(Fin. Prod. Fund., Rel. #10, 11/17) xxv FINANCIAL PRODUCT FUNDAMENTALS

licensing, sales practice, advertising and suitability matters. Mr. Teufel also assists broker-dealers in connection with SEC and FINRA inspections and examinations. Mr. Teufel graduated from Emory University, B.B.A., and the Catholic University of America, Columbus School of Law, J.D., cum laude, where he earned the Securities Law Program concentration certificate, participated with the Summer Honors Program internship with the Securities and Exchange Commission, and was Note & Comment Editor of the Journal of Contemporary Health Law & Policy. He is a member of the bars of Florida and the District of Columbia.

Andra Troy (Chapter 1) is an associate of Cleary Gottlieb Steen & Hamilton LLP based in the New York office. Ms. Troy’s practice focuses on corporate and financial transactions. Ms. Troy joined the firm in 2012. She received a J.D. degree, cum laude, from Fordham University School of Law, where she served as an Editor of the Journal of Corporate and and received the Archibald R. Murray Public Service award for her work in Securities Arbitration. She received an undergraduate degree, cum laude, from New York University. Ms. Troy is a member of the Bar in New York. Her native language is English. She is fluent in Romanian and proficient in French. 11/07/17 Walter Van Dorn (Chapter 3) is a partner in the New York office of Baker & Hostetler LLP and leader of the firm’s Intellectual Securities and Capital Markets team. He advises issuers, underwriters and financial institutions on international capital market transactions such as SEC-registered public offerings of both equity and debt securities, securities offerings under Rule 144A and Regulation S, the creation and maintenance of ADR and GDR programs, and general corporate matters. He also advises both U.S. and non-U.S. issuers, underwriters and financial institutions on the application of the U.S. securities laws. Prior to entering private practice, Mr. Van Dorn was Special Counsel in the Office of International Corporate Finance at the SEC Proofs in Washington, D.C. At the SEC, Mr. Van Dorn was responsible for U.S. offerings of equity securities and ADRs by non-U.S. issuers and offerings of debt securities by both corporations and governments, as well as mergers and acquisitions involving non-U.S. issuers. He also participated in rule-making initiatives amending Regulation S and requiring public disclosure of securities sold under Regulation S.

4th Mr. Van Dorn received an A.B. in 1984 from the University of Michigan and a J.D., cum laude, in 1987 from the Boston University School of Law. Mr. Van Dorn is a frequent lecturer and writer on the subject of U.S. securities laws and has spoken at conferences around the world.

xxvi About the Contributors

George H. White III (Chapter 24) is a partner at Sullivan & Cromwell LLP. Mr. White’s practice focuses on international capital markets, corporate finance, and mergers and acquisition transactions and corporate restructurings. He is active in the Firm’s Corporate Finance and High-Yield Debt Group. Mr. White regularly advises Barclays plc, Barclays Bank plc, and Barclays Capital on a variety of matters including its liability manage- ment program, regulatory capital issuances, the sale of the Barclays Global Investors asset management business, the capital investment in Barclays by several strategic investors, and various regulatory matters. He also represented Barclays on its proposed acquisition of ABN AMRO Holding NV in 2007. He has been instrumental in helping Barclays to develop its retail structured financial products business in the United States. Mr. White has represented Anheuser-Busch InBev SA/NV and its predecessor companies for over fifteen years. Since the beginning of 2009, Mr. White has represented AB InBev on more than $82 billion of debt financings and re-financings, on its NYSE listing and SEC registration, and on its $120 billion Agreement in Principle with SABMiller to combine the two companies. Mr. White has also represented AB InBev on several debt exchange offers, reorganizations,

11/07/17 and related transactions. In 2015 and 2016, he advised AB InBev on its $46 billion senior unsecured notes via SEC registered public offering (the largest corporate offering in history), and its $1.74 billion and $565 million senior unsecured notes offerings listed on the Taipei Exchange. Mr. White continues to advise AB InBev on the U.S. SEC registration and New York Exchange listing of the new Belgium company set up in connection with the take-over of SABMiller by AB InBev. In 2008, he advised AB InBev on its acquisition of Anheuser- Busch to create the world’s largest brewer and on its related equity and debt financings, including AB InBev’s €6.36 billion rights offering and Anheuser-Busch InBev SA/NV (Belgium), as guarantor, and its subsidiary Anheuser-Busch InBev Finance Inc. (United States), as issuer, in the issuance of US$46 billion aggregate principal amount of Proofs guaranteed notes. He has regularly represented AB InBev’s predecessor companies, including advising Interbrew of Belgium on its combina- tion with AmBev of Brazil in 2004, on the buy-out of minority interests in its Russian and Ukraine subsidiary in 2005, and its acquisition of Brauerei Beck in 2002. Mr. White recently advised Coca-Cola Hellenic Bottling Company,

4th the largest public company in Greece by market capitalization, on its re-listing on the London under a new Swiss holding company and on the related exchange offers and financing arrange- ments. He had previously worked with Coca-Cola Hellenic on its New

(Fin. Prod. Fund., Rel. #10, 11/17) xxvii FINANCIAL PRODUCT FUNDAMENTALS

York Stock Exchange listing, SEC registered debt offerings, and a variety of corporate matters. In the area of high-yield finance, Mr. White has represented the underwriters for Jaguar Land Rover Automotive pie on several debt issues and debt tenders. He also represented Rhone Capital in relation to the financing of the Evonik Carbon Black acquisition. Mr. White advised AT&T (then SBC Communications), the leading strategic investor in Telkom SA, the largest telecommunications company in South Africa, in connection with the SEC registration and of Telkom, as well as the subsequent disposition of this investment through a secondary offering and a sale to a strategic investor. Mr. White also advised AT&T in the sale of its 41% interest in TDC A/S of Denmark. He represented the controlling shareholder of Equant in connection with the acquisition of Equant by France Telecom in 2001. In the field of international capital markets, in addition to his work for Anheuser-Busch InBev, Barclays, Coca-Cola HBC, and AT&T, Mr. White represented Siemens (Germany) and its semiconductor sub- sidiary, Infineon Technologies, in connection with the initial public offering and spin-off of Infineon in 2001. In 2000, he represented Interbrew (Belgium) on its initial public offering. He also advised

11/07/17 Allianz (Germany) in connection with its New York Stock Exchange listing. His experience advising issuers in connection with initial public offerings also includes representing Adidas (Germany) and ASM Lithography (Netherlands) in their highly successful flotations in the United States and Europe. He represented the controlling shareholder of Equant (Netherlands) in Equant’s initial public offering in 1998 and its 1999 follow-on secondary offerings. Between 1996 and 1999, he advised the global coordinators on the various of the Deutsche Telekom privatization, and he also represented the managers in numerous offerings by German, Dutch, and U.K. companies. Mr. White has also assisted several clients with internal investiga- tions and other sensitive corporate matters. Mr. White previously served as Co-Chair of the Capital Markets Proofs Forum of the International Bar Association and the Consultative Advisory Group to the International Auditing and Assurance Standards Board. Mr. White speaks at a variety of trade associations and in professional and educational forums on topics including corporate governance and regulation of capital markets.

4th Robert S. Zwirb (Chapter 19) is a consulting attorney for a Wall Street law firm where he advises market participants on transactional, trading, and regulatory issues. Mr. Zwirb formerly served as counsel to Commissioner and Acting Chairman Sharon Brown-Hruska of the

xxviii About the Contributors

Commodity Futures Trading Commission (CFTC) between 2002 and 2005, providing advice on a wide range of regulatory and legal matters relating to the application of the Commodity Exchange Act to the futures and derivatives industry and to energy derivatives trading. He also served in the same capacity for Chairman Wendy Gramm, and as Assistant General Counsel where he was principally engaged in appellate litigation for the agency. He has spent considerable time on competition issues, having worked earlier in his career at the Federal Trade Commission, where he was involved in matters involving antitrust, competition, and market regulatory issues. Mr. Zwirb has written on legal, financial regulatory, and antitrust topics for law journals such as Regulation, Legal Times, Futures & Derivatives Law Report and the Energy Metro Desk, and has also served as a panel discussant for the ABA Committee on Regulation of Futures and Derivative Instruments. He is also a co-author of a major treatise on commodity pool regulation and a chapter on energy regulation by the Federal Energy Regulatory Commission and the CFTC in Energy and Environmental Trading: U.S. Law and Taxation. Mr. Zwirb received his undergraduate B.A. degree, summa cum laude, from the University of California at Riverside, and his J.D. from the University of California at Los Angeles. He is a member of

11/07/17 the bars of California and the District of Columbia. Proofs 4th

(Fin. Prod. Fund., Rel. #10, 11/17) xxix 4th Proofs 11/07/17 Table of Chapters

VOLUME 1

Chapter 1 The Registered Offering Chapter 2 Limited Offerings and Private Placements Chapter 3 International Securities Offerings Chapter 4 Securitization (Asset-Backed Securities and Structured Financing) Chapter 5 Introduction to Collective Investment Vehicles Chapter 6 Mutual Funds Chapter 7 Closed-End Investment Companies

11/07/17 Chapter 8 Unit Investment Trusts Chapter 9 Funds Chapter 10 Wrap Fee Programs Chapter 11 Hedge Funds Chapter 12 International Investment Funds Chapter 13 Commodity Pools Chapter 14 Real Estate Investment Trusts

VOLUME 2 Proofs Chapter 15 Private Equity Funds and Advisers: Structural Features; Tax and Regulatory Considerations; and Other Issues, Trends, and Future Challenges Chapter 16 An Overview of the Formation and Operation 4th of Exchange-Traded Products Chapter 17 Exchange-Traded Funds Chapter 18 College Savings Plans

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Chapter 19 A Primer on Derivative Contracts and Their Regulation Chapter 20 An Introduction to Variable Insurance Products Chapter 21 Organization of Private Investment Funds: Basic Structural and Legal Issues Chapter 22 Real Estate Mortgage Investment Conduits (REMICs) Chapter 23 Alternatives to Traditional Securities Offerings Chapter 24 Exchange-Traded Notes and Similar Structured Notes Chapter 25 Insurance-Linked Securities Chapter 26 Introduction to Life Settlements Chapter 27 Interval Funds 11/07/17 Proofs 4th

xxxii Table of Contents

VOLUME 1

About the Editor...... ix About the Contributors...... xi Table of Chapters...... xxxi

Chapter 1 The Registered Offering Adam E. Fleisher, Rebecca Tabb & Andra Troy 11/07/17 § 1:1 Introduction ...... 1-3 § 1:2 Pre-IPO Financing...... 1-3 § 1:3 Advantages of Going Public ...... 1-5 § 1:3.1 Raising Capital ...... 1-5 § 1:3.2 Venture Capital or Private Equity Exits ...... 1-5 § 1:3.3 Founder Liquidity...... 1-5 § 1:3.4 Employee Compensation ...... 1-5 § 1:3.5 Acquisition Currency...... 1-6 § 1:3.6 Branding and Prestige ...... 1-6 § 1:4 Disadvantages of Going Public...... 1-6 § 1:4.1 Increased Expenses ...... 1-6 § 1:4.2 Increased Liability Exposure ...... 1-7

Proofs § 1:4.3 Loss of Privacy and Flexibility ...... 1-7 § 1:4.4 Management Distraction ...... 1-8 § 1:4.5 Loss of Control ...... 1-8 § 1:4.6 Exposure to Governance Scrutiny and Shareholder Activism...... 1-9 § 1:4.7 Valuation Fluctuation ...... 1-9 § 1:5 The Working Group...... 1-9 4th § 1:6 EGC Status ...... 1-11 § 1:7 Terms of the Offering...... 1-12 § 1:8 Accounting and Auditing Issues...... 1-13 § 1:9 Listing Venue ...... 1-14

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§ 1:10 Pre-IPO Corporate Clean-Up ...... 1-15 § 1:10.1 Corporate Governance—Board Matters ...... 1-15 § 1:10.2 Anti-Takeover Protections ...... 1-15 [A] Other Clean-Up Matters—Management, Related-Party Matters, Consents, Corporate Policies, and More...... 1-16 § 1:11 Communications During an IPO...... 1-18 § 1:11.1 Generally...... 1-18 Figure 1-1 IPO Phases and Publicity...... 1-18 § 1:11.2 Pre-Filing (or Quiet) Period...... 1-19 § 1:11.3 Post-Filing (or Waiting) Period ...... 1-20 § 1:11.4 Post-Effectiveness Period...... 1-20 § 1:12 Securities Liabilty and Due Diligence ...... 1-21 § 1:13 Key Documentation ...... 1-23 § 1:13.1 Prospectus and Registration Statement...... 1-23 § 1:13.2 Underwriting Agreement ...... 1-24 § 1:13.3 Lock-Up Agreements ...... 1-26 § 1:13.4 Road Show Presentation ...... 1-26 § 1:13.5 Auditor Comfort Letters ...... 1-26 § 1:13.6 Legal Opinions and Disclosure Letters ...... 1-27 § 1:14 Timeline...... 1-27

11/07/17 Figure 1-2 Timeline ...... 1-28 § 1:14.1 Pre-Filing: Drafting the Registration Statement and Due Diligence ...... 1-30 § 1:14.2 Filing and the SEC Comment Process...... 1-30 § 1:14.3 Road Show: Rules of the Road ...... 1-30 § 1:14.4 Effectiveness, Pricing and Closing ...... 1-31 § 1:15 Life As a Public Company...... 1-32 § 1:15.1 Form 10-K/Form 20-F ...... 1-32 § 1:15.2 Form 10-Q ...... 1-32 § 1:15.3 Form 8-K/Form 6-K...... 1-32 § 1:15.4 Proxy Regime ...... 1-33 § 1:15.5 Schedule 13D/G...... 1-33 § 1:15.6 Tender Offer Regime ...... 1-34 Proofs § 1:15.7 Section 16 ...... 1-35 § 1:15.8 Other Large Holder Considerations ...... 1-35 § 1:15.9 Earnings Reports...... 1-36 § 1:15.10 Non-GAAP Financial Measures...... 1-36 § 1:15.11 Regulation FD...... 1-37 § 1:15.12 Sarbanes-Oxley Act...... 1-37

4th § 1:15.13 Conflict Minerals...... 1-38 § 1:15.14 Iran Notice...... 1-38 § 1:15.15 XBRL...... 1-38 § 1:16 Company and Selling Security Holder Financing Options Post-IPO ...... 1-39 § 1:17 Conclusion ...... 1-41

xxxiv Table of Contents

Chapter 2 Limited Offerings and Private Placements Harry S. Pangas & Sara Sabour § 2:1 Overview ...... 2-2 § 2:2 Securities Act of 1933 and State Blue Sky Laws ...... 2-2 § 2:3 Securities Act Exemptions for Limited Offerings and Private Placements...... 2-4 § 2:3.1 Section 3(b) of the Securities Act—Limited Offerings ...... 2-4 § 2:3.2 Section 4(a)(2) of the Securities Act—Private Placements...... 2-5 § 2:4 Regulation A in Detail ...... 2-8 § 2:5 Regulation A+ in Detail ...... 2-9 § 2:6 Regulation E in Detail...... 2-12 § 2:7 Regulation D in Detail...... 2-12 § 2:7.1 Rule 504 Offerings ...... 2-13 § 2:7.2 Rule 505 Offerings ...... 2-14 § 2:7.3 Rule 506 Offerings ...... 2-14 § 2:7.4 No General Advertising or Solicitation in Certain Regulation D Offerings...... 2-15 § 2:7.5 Counting Investors ...... 2-17

11/07/17 § 2:7.6 Accredited Investors...... 2-19 § 2:7.7 Disclosure Obligations...... 2-21 § 2:7.8 “Bad Actor” Disqualification Provisions ...... 2-23 § 2:7.9 Form D ...... 2-24 § 2:7.10 Recent Amendments to Form D...... 2-25 § 2:7.11 Substantial Compliance...... 2-26 § 2:7.12 Limitations on Resale ...... 2-27 § 2:7.13 Integration ...... 2-28 § 2:7.14 Integration of Exempt Offerings and the Regulation D Safe Harbor...... 2-28 § 2:7.15 Integration of Exempt Offering and Subsequent Public Offering—“Gun Jumping”...... 2-29 § 2:7.16 Securities Offerings Available Under Proofs Regulation D...... 2-30 § 2:8 Proposed Revisions to Regulation D ...... 2-30 § 2:9 Interaction of Regulation S with Regulation D ...... 2-32 § 2:10 Rule 144A Transactions...... 2-33 § 2:11 Rule 147 and Rule 147A Intrastate Offerings ...... 2-35 § 2:12 Crowdfunding Exempt Offerings...... 2-38

4th § 2:13 State Blue Sky Requirements...... 2-40 Appendix 2A Limited Offering and Quick Reference Chart...... App. 2A-1

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Chapter 3 International Securities Offerings Walter Van Dorn § 3:1 Introduction ...... 3-3 § 3:1.1 Foreign Private Issuer...... 3-3 § 3:2 Public Offerings in the United States ...... 3-5 § 3:2.1 Registration on Form F-1...... 3-5 § 3:2.2 Short-Form and Shelf Registration...... 3-9 § 3:2.3 Accounting and Financial Disclosure ...... 3-11 § 3:2.4 Trust Indentures ...... 3-15 § 3:2.5 Procedures and Mechanics...... 3-15 [A] “Due Diligence” Investigations...... 3-17 [B] Underwriting ...... 3-18 § 3:3 Global Offerings ...... 3-18 § 3:3.1 Combined Regulation S and Rule 144A Offerings ...... 3-19 § 3:3.2 Rule 144A ...... 3-20 § 3:3.3 Regulation S...... 3-20 [A] Most Offerings by Non-U.S. Issuers; Some U.S. Issuers (Category 1) ...... 3-22 [B] Debt Offerings by Reporting U.S. and Non-U.S.

11/07/17 Issuers and Non-Reporting Non-U.S. Issuers with SUSMI; Equity Offerings by Reporting Non-U.S. Issuers with SUSMI (Category 2) ...... 3-23 [C] All Other Offerings (Category 3)...... 3-25 [D] Resales of Securities Under Regulation S...... 3-26 § 3:3.4 Procedures and Mechanics...... 3-27 [A] Equity Securities ...... 3-29 [B] Debt Securities...... 3-30 § 3:4 American Depositary Receipts (or ADRs) ...... 3-30 § 3:5 State “Blue Sky” Laws ...... 3-32 § 3:6 Investment Company Act Considerations ...... 3-33 § 3:7 Legal Consequences to a Non-U.S. Company of Having a Public U.S. Market ...... 3-33 Proofs § 3:7.1 The Securities Exchange Act of 1934 ...... 3-33 § 3:7.2 Registration and Annual Reports...... 3-34 § 3:7.3 Periodic Reports on Form 6-K...... 3-39 § 3:7.4 Rule 12g3-2(b) Exemption ...... 3-39 § 3:7.5 Exemptions from the Exchange Act...... 3-40 § 3:7.6 Exemption from Regulation FD...... 3-40

4th § 3:8 Sarbanes-Oxley Act ...... 3-41 § 3:8.1 Internal Control over Financial Reporting...... 3-41 § 3:8.2 Disclosure Controls and Procedures ...... 3-42 § 3:8.3 Certification Requirements ...... 3-43

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§ 3:8.4 Regulation G and Non-GAAP Financial Measures ...... 3-43 § 3:8.5 Audit Committees ...... 3-44 § 3:8.6 Audit Committee Financial Expert ...... 3-46 § 3:8.7 Auditor Independence ...... 3-46 § 3:8.8 to Executives ...... 3-46 § 3:8.9 Trading During Blackout Period...... 3-47 § 3:8.10 Code of Ethics...... 3-47 § 3:8.11 Off-Balance Sheet and Other MD&A Disclosure.... 3-48 § 3:9 Listing on a U.S. Stock Exchange ...... 3-49 § 3:10 Foreign Private Issuer Deregistration ...... 3-50 § 3:11 Dodd-Frank Act...... 3-52 § 3:11.1 Conflict Minerals...... 3-52 § 3:11.2 Mine Safety and Health...... 3-53 § 3:11.3 Compensation Committee and Compensation Committee Advisor Independence...... 3-53 § 3:11.4 Whistleblowers...... 3-53 § 3:12 JOBS Act ...... 3-53 § 3:12.1 Emerging Growth Companies ...... 3-54 § 3:12.2 General Solicitation ...... 3-54 § 3:12.3 Regulation A+ ...... 3-55

11/07/17 § 3:12.4 Exchange Act Registration Thresholds ...... 3-56 Appendix 3A Form F-1: Registration Statement Under the Securities Act of 1933...... App. 3A-1

Chapter 4 Securitization (Asset-Backed Securities and Structured Financing) Tamar Frankel § 4:1 Introduction ...... 4-2 § 4:1.1 The Current Crisis Involving Mortgage-Backed Securities...... 4-4 § 4:2 Pooling ...... 4-6 Proofs § 4:3 Highlights of Securitization...... 4-8 § 4:3.1 Securitization As a Converter; from Illiquid Loans to Liquid Securities; from Institutions to Markets; from Traditional Systems to a New System...... 4-8 [A] Main Feature of Securitization...... 4-8

4th [B] Conditions for the Development of Markets...... 4-9 [C] Two Traditional Channels of Intermediation...... 4-9 [D] Securitization As a Tool for Liquidity ...... 4-11 [E] Securitization As a New System of Intermediation ...... 4-11

(Fin. Prod. Fund., Rel. #10, 11/17) xxxvii FINANCIAL PRODUCT FUNDAMENTALS

§ 4:3.2 Securitization As a Method of Selling Loans ...... 4-11 § 4:3.3 Securitization As a Mechanism for Unbundling Functions ...... 4-12 [A] Separating Lending from Other Functions...... 4-12 [B] Separating the Servicing Function ...... 4-14 § 4:3.4 Securitization As a Tool for Flexible Creation of Securities ...... 4-14 [A] Flexibility in Allocating Risk Among Various Classes of Securities...... 4-15 [B] Flexibility in Designing the Risk Level of SPV Securities: Diversification and ...... 4-17 § 4:4 Legal Issues Concerning Securitization...... 4-18 § 4:4.1 Interdisciplinary Aspect of Securitization Law ...... 4-18 § 4:4.2 Legal Problems and Guides to Solutions ...... 4-19 § 4:5 Where Is Securitization Heading? ...... 4-22 § 4:5.1 The Reach of Securitization Today...... 4-22 § 4:5.2 Can All Loans Be Securitized? ...... 4-24 § 4:5.3 Is Securitization Here to Stay?...... 4-28 Graph 4-1 The Securitization Process...... 4-32

11/07/17 Graph 4-2 Channels of Intermediation ...... 4-33 Graph 4-3 Traditional Role of Banks ...... 4-33

Chapter 5 Introduction to Collective Investment Vehicles Clifford E. Kirsch § 5:1 Background...... 5-1 § 5:2 Regulatory Structure...... 5-2 Chart 5-1 Private Money Managers vs. Mutual Funds ...... 5-3 § 5:2.1 The Retail Marketplace...... 5-3 Chart 5-2 Retail Investment Vehicles ...... 5-4 § 5:2.2 The Private Marketplace...... 5-5

Proofs § 5:2.3 The Offshore Marketplace ...... 5-5 Chart 5-3 Collective Investment Vehicles...... 5-6

Chapter 6 Mutual Funds Clifford E. Kirsch & Bibb L. Strench § 6:1 A Brief History of the Mutual Fund Industry ...... 6-2 4th § 6:2 The Players ...... 6-11 § 6:2.1 Mutual Funds ...... 6-12 § 6:2.2 Investment Adviser ...... 6-13 § 6:2.3 ...... 6-13

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§ 6:2.4 Administrator ...... 6-14 § 6:2.5 Underwriter or Distributor ...... 6-14 § 6:2.6 Custodian ...... 6-14 § 6:2.7 Transfer Agent ...... 6-15 § 6:2.8 Independent Auditors ...... 6-15 § 6:2.9 Legal Counsel ...... 6-15 § 6:2.10 Chief Compliance Officer ...... 6-15 § 6:2.11 Shareholders...... 6-16 § 6:3 Organizational Structure ...... 6-16 § 6:3.1 The Mutual Fund Complex...... 6-16 Figure 6-1 The Mutual Fund Complex...... 6-16 § 6:3.2 The Adviser and the Board ...... 6-17 Figure 6-2 The Adviser and the Board ...... 6-17 § 6:3.3 The Fund’s Distribution Structure ...... 6-17 Figure 6-3 Distribution Structure 1: Fund/Principal Underwriter/Broker-Dealer/Investors...... 6-18 Figure 6-4 Distribution Structure 2: Fund/Principal Underwriter/Investors ...... 6-18 Figure 6-5 Distribution Structure 3: Fund/Broker-Dealers ..... 6-19 § 6:3.4 Portfolio Management Structure...... 6-19 Figure 6-6 Traditional Portfolio Management Structure ...... 6-19 11/07/17 Figure 6-7 Manager of Managers Structure...... 6-20 § 6:3.5 Marketing Structures ...... 6-20 Figure 6-8 Master-Feeder Structure ...... 6-20 Figure 6-9 Multi-Class Structure ...... 6-21 Figure 6-10 Structure ...... 6-22 § 6:4 Regulatory Framework ...... 6-22 § 6:4.1 Overview of the Investment Company Act...... 6-22 § 6:4.2 Restrictions on Advisory Services ...... 6-23 [A] Prospectus Disclosure ...... 6-23 [B] Controls Over the Advisory Contract ...... 6-24 [C] Corporate Structure ...... 6-24 [D] Private Right of Action ...... 6-25

Proofs [E] Affiliated Transactions...... 6-25 [F] Restrictions on Investments ...... 6-26 § 6:4.3 Restrictions on ...... 6-27 [A] Prohibition on Debt Issuance ...... 6-27 [B] Issuance of Redeemable Shares...... 6-27 [C] Pricing of Shares ...... 6-28 § 6:4.4 Restrictions on Sales of Fund Shares ...... 6-28 4th [A] Limits on Sales Load...... 6-28 [B] Financing Distribution Through Fund Assets ...... 6-28 [C] Advertising Regulations ...... 6-28

(Fin. Prod. Fund., Rel. #10, 11/17) xxxix FINANCIAL PRODUCT FUNDAMENTALS

§ 6:4.5 Administration of the Investment Company Act: The Role of the SEC ...... 6-30 [A] SEC Inspections...... 6-30 [B] Enforcement...... 6-31 § 6:5 Application of the Investment Advisers Act...... 6-31

Chapter 7 Closed-End Investment Companies Wendell M. Faria § 7:1 Introduction ...... 7-2 § 7:2 What Is a Closed-End Investment Company? ...... 7-3 § 7:3 Reasons for Relative Unpopularity of Closed-End Companies ...... 7-7 § 7:3.1 High-Cost Exit Strategies for Investors...... 7-7 § 7:3.2 The Discount Phenomenon...... 7-8 § 7:4 Reasons for Choosing to Operate As a Closed-End Company...... 7-11 § 7:5 Regulation of the Offer and Sale of Closed-End Company Shares ...... 7-13 § 7:6 Financing Distribution Costs of Closed-End Companies ...... 7-16 11/07/17 § 7:7 Registration Procedures for Closed-End Companies ...... 7-17 § 7:8 Periodic Reporting Under the Investment Company Act...... 7-17 § 7:9 Regulation of Repurchases by Closed-End Companies ...... 7-18 § 7:9.1 Requirements of the Exchange Act ...... 7-18 § 7:9.2 Repurchases in the Course of a Distribution: Rule 102 of Regulation M...... 7-19 § 7:9.3 Requirements of the Investment Company Act ...... 7-20 [A] Rule 23c-1...... 7-20

Proofs [B] Rule 23c-2...... 7-21 [C] Rule 23c-3...... 7-21 § 7:10 Regulation of the Operations of the Closed-End Company...... 7-24 § 7:10.1 The Capital Structure of Closed-End Companies.... 7-24 § 7:10.2 Restrictions on Investments by Closed-End Companies...... 7-26 4th Appendix 7A Form N-2: Registration Statement for Closed-End Management Investment Companies...... App. 7A-1

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Chapter 8 Unit Investment Trusts Laurin Blumenthal Kleiman & Joyce E. Larson § 8:1 Introduction ...... 8-2 § 8:2 History ...... 8-6 § 8:3 How UITs Compare to Mutual Funds ...... 8-8 § 8:4 UIT Structure...... 8-9 § 8:4.1 Trust Indenture...... 8-9 § 8:4.2 Key Participants ...... 8-10 [A] The Sponsor...... 8-10 [B] The Trustee...... 8-11 [C] The Evaluator ...... 8-12 [D] The Underwriters ...... 8-12 § 8:5 Creation, Offering and Sale of Units ...... 8-12 § 8:5.1 Trust Documents ...... 8-12 § 8:5.2 Accumulation and Deposit ...... 8-13 § 8:5.3 Offering and Sale of Units ...... 8-13 [A] Front-End Sales Charges ...... 8-13 [B] Deferred Sales Charges ...... 8-14 § 8:5.4 Liquidity of Units ...... 8-15 § 8:6 Registration Process ...... 8-16

11/07/17 § 8:6.1 Registration Under the Securities Act and the Investment Company Act...... 8-16 § 8:6.2 Calculation of Filing Fees ...... 8-17 § 8:6.3 Disclosure Forms ...... 8-18 [A] Form N-8B-2...... 8-18 [B] Form S-6 ...... 8-19 [C] Form N-4 and Form N-6 ...... 8-19 [D] Proposed Form N-7...... 8-20 [E] Reports to the SEC and to Unitholders ...... 8-21 § 8:7 Selected Regulatory and Disclosure Issues ...... 8-22 § 8:7.1 Advertising...... 8-22 § 8:7.2 Codes of Ethics ...... 8-22 § 8:7.3 Compliance Programs and Compliance Officers .... 8-23 Proofs § 8:7.4 Point of Sale and Confirmation Disclosure ...... 8-23 § 8:7.5 Anti-Money Laundering Legislation ...... 8-23 § 8:7.6 Impact on UITs of the Sarbanes-Oxley Act of 2002 ...... 8-25 [A] Improper Influence on Conduct of Audits...... 8-25 [B] Section 302 Certification Requirements ...... 8-25

4th [C] Other Provisions Not Applicable to UITs...... 8-26 [D] Listing Standards ...... 8-26 § 8:7.7 Disclosure Issues ...... 8-26 [A] Return Information...... 8-26

(Fin. Prod. Fund., Rel. #10, 11/17) xli FINANCIAL PRODUCT FUNDAMENTALS

[B] Fees ...... 8-28 [C] Plain English Requirement ...... 8-28 [D] Disclosure Document Delivery...... 8-28 [E] Investment Company Names ...... 8-29 § 8:8 The Evolving Definition of “Fixed Portfolio of Securities” ...... 8-29 § 8:9 Innovative Uses of the UIT ...... 8-33 § 8:9.1 Vehicles...... 8-33 § 8:9.2 Exchange Traded UITs...... 8-35 § 8:10 Conclusion ...... 8-40 Appendix 8A Differences Between UITs and Mutual Funds ...... App. 8A-1

Chapter 9 Money Market Funds Jack W. Murphy, Douglas P. Dick, Stephen T. Cohen & Brenden P. Carroll § 9:1 Introduction ...... 9-3 § 9:2 What Is a ? ...... 9-5 § 9:3 Rule 2a-7 ...... 9-9

11/07/17 § 9:3.1 Exemption from Standard Valuation Procedures and Types of Money Market Funds Under Rule 2a-7 ...... 9-9 [A] Exemption Under Rule 2a-7 for Government and Retail Money Market Funds ...... 9-9 [B] Floating NAV Requirement for “Institutional” Non-Government Money Market Funds ...... 9-11 [C] Government Money Market Funds ...... 9-12 [D] Retail Money Market Funds ...... 9-13 [E] Reorganization of Institutional and Retail Money Market Funds and Mandatory Redemptions ...... 9-16 [F] Tax and Accounting Implications of the Proofs Floating NAV Requirement...... 9-18 § 9:3.2 Liquidity Fees and Redemption Gates ...... 9-19 [A] Duration and Lifting of Fees and Redemption Gates ...... 9-22 [B] Board Considerations...... 9-22 § 9:3.3 Holding Out and Use of Names and Titles...... 9-25

4th § 9:3.4 Board Findings and Procedures Under Rule 2a-7...... 9-26 [A] Required Board Findings for Use of Amortized Cost or Penny-Rounding Methods...... 9-26

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[B] Required Procedures: Government or Retail Money Market Funds Using the Amortized Cost Method ...... 9-27 [B][1] Shadow Pricing and Related Board Actions ...... 9-27 [B][1][a] Required Board Action ...... 9-28 [B][1][b] Disclosure of Shadow Pricing and Deviation ...... 9-28 [C] Required Procedures: Government or Retail Money Market Funds Using the Penny-Rounding Pricing Method ...... 9-29 [D] Specific Procedures: All Funds ...... 9-29 [D][1] Stress Testing...... 9-29 [D][2] Other Required Procedures ...... 9-33 § 9:3.5 The Risk-Limiting Provisions ...... 9-34 [A] Maturity...... 9-35 [A][1] Portfolio Maturity ...... 9-35 [A][1][a] In General ...... 9-35 [A][1][b] Calculating Weighted Average Life ...... 9-36 [A][2] Maturity of Portfolio Securities...... 9-36 [A][2][a] Adjustable Rate Government Securities...... 9-37 [A][2][b] Variable Rate Securities ...... 9-38

11/07/17 [A][2][c] Floating Rate Securities...... 9-38 [A][2][d] Repurchase Agreements ...... 9-39 [A][2][e] Portfolio Lending Agreements ...... 9-40 [A][2][f] Money Market Fund Shares...... 9-40 [B] Portfolio Quality ...... 9-40 [B][1] Eligible Securities...... 9-42 [B][2] U.S. Dollar Denominated Securities ...... 9-44 [B][3] Eligible Security—Securities Subject to Guarantees or Demand Features ...... 9-45 [C] Portfolio Diversification ...... 9-47 [C][1] Issuer Diversification...... 9-48 [C][1][a] General Diversification Requirements ...... 9-48 [C][1][a][i] Taxable and National Funds ...... 9-48 Proofs [C][1][a][ii] Single State Funds ...... 9-50 [C][1][b] Guidelines for Calculating Issuer Diversification...... 9-50 [C][1][b][i] Repurchase Agreements ...... 9-51 [C][1][b][ii] Refunded Securities and Conduit Securities ...... 9-52

4th [C][1][b][iii] Asset-Backed Securities...... 9-52 [C][1][b][iv] Shares of Money Market Funds...... 9-54 [C][1][b][v] Treatment of Certain Affiliated Entities ...... 9-55

(Fin. Prod. Fund., Rel. #10, 11/17) xliii FINANCIAL PRODUCT FUNDAMENTALS

[C][2] Demand Feature and Guarantee Diversification ...... 9-56 [C][2][a] Diversification Requirements for Demand Features and Guarantees ...... 9-56 [C][2][b] Guidelines for Calculating Demand Feature and Guarantee Diversification...... 9-57 [D] Portfolio Liquidity ...... 9-58 [D][1] Background ...... 9-58 [D][2] Portfolio Liquidity Requirements ...... 9-59 [D][2][a] General Liquidity Requirement/ Procedures...... 9-60 [D][2][b] Limitation on the Acquisition of Illiquid Securities ...... 9-62 [D][2][c] Minimum Daily and Weekly Liquidity Requirements ...... 9-62 § 9:3.6 Defaults and Other Events Related to Portfolio Securities ...... 9-63 [A] Defaults and Other Events Requiring Disposition ...... 9-64 [B] Responding to Issues in Less Liquid Markets...... 9-65 [C] Notice to the SEC—Form N-CR...... 9-69

11/07/17 § 9:3.7 Disclosure of Portfolio Information and Other Fund Information on Public Website...... 9-72 § 9:3.8 Recordkeeping ...... 9-75 § 9:3.9 Delegation of Board Responsibilities...... 9-76 § 9:4 Affiliated Buyouts of Fund Portfolio Securities...... 9-78 § 9:5 Industry Concentration...... 9-80 § 9:6 Disclosure and Advertising Standards...... 9-81 § 9:6.1 Disclosure ...... 9-81 [A] Form N-1A ...... 9-81 [B] Form N-MFP ...... 9-85 § 9:6.2 Advertising...... 9-90 § 9:7 Suspension of Redemptions ...... 9-92 § 9:8 Processing of Purchases and Redemptions ...... 9-93 Proofs § 9:9 Conclusion ...... 9-93

Chapter 10 Wrap Fee Programs Eric C. Freed § 10:1 Background...... 10-1

4th § 10:1.1 The Classic Wrap Fee Program...... 10-2 § 10:1.2 The Mutual Fund Wrap Program...... 10-3 § 10:2 The Legal Issues...... 10-3 § 10:2.1 Wrap Fee Programs As Investment Companies...... 10-3

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§ 10:2.2 Other Substantive Issues ...... 10-6 [A] Suitability...... 10-6 [B] Best Execution ...... 10-7 [C] Principal Transactions...... 10-8 § 10:2.3 Disclosure Requirements ...... 10-9 Appendix 10A Part 2A Appendix 1 of Form ADV ...... App. 10A-1

Chapter 11 Hedge Funds Scott J. Lederman § 11:1 Introduction ...... 11-4 § 11:2 What Exactly Is a Hedge Fund? ...... 11-6 § 11:2.1 Diverse Strategies...... 11-6 § 11:2.2 Common Characteristics...... 11-8 § 11:3 Raising Capital...... 11-9 § 11:3.1 Private Placement ...... 11-9 [A] Regulation D...... 11-9 [B] Accredited Investors...... 11-10 [B][1] Adjustments and Review of the Standard...... 11-10

11/07/17 [B][2] Proposed Amendments: “Accredited Natural Person”...... 11-12 [B][3] Proposed Amendments: Alternative “Investments-Owned” Standard and Exemption for “Large Accredited Investors”...... 11-15 [C] Non-Accredited Investors...... 11-16 [D] Disclosure Requirements ...... 11-17 [E] Manner of the Offering...... 11-19 [F] Limits on Resales...... 11-21 [G] Disqualified Offerings ...... 11-22 [H] Post-Sale Filing ...... 11-22 § 11:3.2 State Law Preemption...... 11-27 Proofs § 11:3.3 Related Considerations Affecting the Size and Scope of the Private Placement ...... 11-29 § 11:3.4 FINRA Considerations...... 11-34 § 11:3.5 Commodity Pools ...... 11-36 [A] Disclosure Document ...... 11-37 [B] Reporting and Record-Keeping ...... 11-42

4th [C] Exemptions from Disclosure, Reporting, and Record-Keeping Requirements...... 11-43 [C][1] Rule 4.12(b) ...... 11-43 [C][2] Rule 4.7 ...... 11-44

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[C][3] Offshore Commodity Pools ...... 11-49 [C][4] Electronic Filing...... 11-51 § 11:4 Private Investment Company Exception ...... 11-51 § 11:4.1 Hybrid Funds ...... 11-57 § 11:5 Hedge Fund Manager ...... 11-58 § 11:5.1 Bifurcated Regulation...... 11-59 [A] Federal Registration ...... 11-64 [B] Implications of Federal Registration ...... 11-73 § 11:5.2 Exemption from Registration...... 11-80 [A] Private Adviser Exemption...... 11-80 [B] Private Fund Exemptions ...... 11-81 [B][1] The Private Fund ...... 11-81 [B][2] Private Fund Adviser Exemption ...... 11-81 [B][3] Venture Capital Funds ...... 11-83 [B][4] Exempt Reporting Advisers...... 11-85 Chart 11-1 Registration Chart ...... 11-88 [B][5] Foreign Private Advisers...... 11-89 [B][6] Other Exemptions from Registration...... 11-91 [B][6][a] Intra-State Exemption ...... 11-91 [B][6][b] CTA Exemption ...... 11-92 [B][6][c] ...... 11-92

11/07/17 [C] Jurisdictional Reach of Advisory Regulators...... 11-92 [C][1] State Oversight ...... 11-92 [C][2] Federal Anti-Fraud Rule ...... 11-93 § 11:5.3 Performance-Based Compensation...... 11-95 § 11:5.4 Privacy Regulations ...... 11-97 § 11:5.5 Anti-Money Laundering Regulations ...... 11-100 § 11:5.6 ...... 11-102 § 11:5.7 Commodity Trading Adviser...... 11-103 § 11:5.8 Registration of CPOs and CTAs ...... 11-103 § 11:5.9 Exclusions and Exemptions from Registration of CPOs and CTAs ...... 11-104 [A] Section 4.5 Exclusion from the Definition of Commodity Pool Operator ...... 11-104 Proofs [B] Section 4.13 Exemptions from Registration As a Commodity Pool Operator ...... 11-106 [B][1] Section 4.13(a)(1) No Compensation Exemption ...... 11-106 [B][2] Section 4.13(a)(2) Small Operator Exemption ...... 11-107

4th [B][3] Section 4.13(a)(3) Limited Futures Trading Exemption...... 11-107 [B][4] Section 4.13(a)(4) Sophisticated Investor Exemption...... 11-108

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[C] Exemptions from Registration As a Commodity Trading Adviser...... 11-110 [C][1] Section 4.14(a)(4) and (a)(5) CPO Exemptions ...... 11-110 [C][2] Section 4.14(a)(8) Registered Investment Adviser Exemption...... 11-110 [C][3] Section 4.14(a)(10) Private CTA Exemption ...... 11-111 [D] Electronic Filing ...... 11-112 § 11:6 Market Participation...... 11-112 § 11:6.1 Broker-Dealer Status ...... 11-113 § 11:6.2 New Issues...... 11-114 [A] Rule 5130...... 11-114 [B] Rule 5131...... 11-119 § 11:6.3 Soft Dollars...... 11-121 [A] Goods or Services Provided by the Broker ...... 11-123 [B] Investment Discretion ...... 11-124 [C] Good-Faith Determination ...... 11-125 [D] Brokerage and Research Services...... 11-125 [D][1] Research...... 11-126 [D][2] Brokerage ...... 11-127

11/07/17 [D][3] Mixed-Use Items ...... 11-128 [D][4] Lawful and Appropriate Assistance...... 11-129 [E] Operating Outside the Safe Harbor ...... 11-130 § 11:6.4 Sections 13(d) and 13(g) ...... 11-130 § 11:6.5 Section 13(f)...... 11-133 § 11:6.6 Section 13(h)...... 11-133 § 11:6.7 Section 16 ...... 11-138 § 11:6.8 Additional Reporting Considerations...... 11-140 § 11:7 Systemic Risk Regulation...... 11-142 § 11:7.1 Financial Stability Oversight Council ...... 11-142 § 11:7.2 Nonbank Financial Company...... 11-143 [A] Supervision and Regulation of Certain Nonbank Financial Companies ...... 11-144 Proofs [B] Prudential Regulation ...... 11-145 [C] Reporting ...... 11-148 [D] Orderly Liquidation...... 11-150 [E] Systemic Risk Information ...... 11-152 Chart 11-2 Filings for CPOs and CTAs (Dually Registered with the SEC or Solely Registered

4th with the CFTC)...... 11-158 § 11:8 Derivatives Markets Participants...... 11-159 § 11:8.1 Regulatory Jurisdiction Over Swaps...... 11-160 § 11:8.2 Clearing and Exchange Trading ...... 11-162

(Fin. Prod. Fund., Rel. #10, 11/17) xlvii FINANCIAL PRODUCT FUNDAMENTALS

§ 11:8.3 Swap Dealers and Major Swap Participants...... 11-162 [A] Definition of “Swap Dealer” and “Security-Based Swap Dealer”...... 11-162 [B] Definition of “Major Swap Participant” and “Major Security-Based Swap Participant”...... 11-167 [C] Registration...... 11-172 [D] Regulatory Capital and Margin...... 11-173 [E] Reporting and Record-Keeping ...... 11-174 [F] Compliance Duties ...... 11-176 [F][1] Risk Management...... 11-177 [F][2] Monitoring of Position Limits ...... 11-178 [F][3] Diligent Supervision ...... 11-179 [F][4] Business Continuity and Disaster Recovery ... 11-179 [F][5] Disclosure and Ability to Obtain Information ...... 11-179 [F][6] Antitrust Considerations ...... 11-179 [F][7] Chief Compliance Officer...... 11-179 [G] Business Conduct Standards...... 11-182 [G][1] Anti-Fraud and Anti-Manipulation Regulations ...... 11-183 [G][1][a] Swaps ...... 11-183

11/07/17 [G][1][b] Security-Based Swaps ...... 11-185 [G][2] Verification of Counterparty Eligibility ...... 11-187 [G][3] Disclosure of Material Risks, Characteristics, Material Incentives and Conflicts of Interest Regarding a Swap ...... 11-188 [G][4] Daily Mark ...... 11-189 [G][5] Clearing ...... 11-190 [G][6] Communications—Fair Dealing ...... 11-190 [G][7] Recommendations to Counterparties— Institutional Suitability...... 11-190 [G][8] Execution Standards ...... 11-191 [G][9] Swap Documentation Standards...... 11-192 [G][10] Portfolio Confirmation, Reconciliation and Proofs Compression...... 11-193 [G][10][a] Portfolio Confirmation...... 11-193 [G][10][b] Portfolio Reconciliation...... 11-195 [G][10][c] Portfolio Compression...... 11-196 [G][11] Conflicts of Interest...... 11-196 [H] Special Obligations Regarding Special Entity..... 11-198

4th § 11:9 Rationale for Regulation...... 11-198

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Chapter 12 International Investment Funds Robert W. Helm & Kevin F. Cahill § 12:1 Introduction ...... 12-5 § 12:2 Offshore Funds...... 12-6 § 12:2.1 Jurisdictions ...... 12-6 § 12:2.2 Selecting an Offshore Fund Jurisdiction ...... 12-7 [A] Type of Fund—Investment Policy ...... 12-8 [B] Distribution Considerations ...... 12-8 [C] Structural Considerations ...... 12-9 [D] Servicing Considerations ...... 12-10 [E] Tax Considerations ...... 12-10 [F] Intangibles ...... 12-10 [G] Listing Opportunities...... 12-11 § 12:2.3 Structuring Offshore Funds and Integrating Offshore Funds with Domestic Products ...... 12-11 [A] “Mirror” Offshore Funds ...... 12-11 [A][1] Integration ...... 12-11 [A][2] Use of Adviser Performance Record...... 12-12 [B] Multiple Classes of Shares...... 12-13 [C] Fund of Funds Structure ...... 12-13

11/07/17 [D] Master/Feeder Structure ...... 12-15 [D][1] Master/Feeder Requirements...... 12-15 [D][2] Tax Considerations for Master/Feeder Arrangements ...... 12-16 [D][3] Use of Master/Feeder Fund Structure for Offshore Markets...... 12-17 [D][4] Advantages of Master/Feeder Structure in Onshore/Offshore Context...... 12-19 [D][5] Disadvantages...... 12-19 § 12:2.4 Cloning ...... 12-19 § 12:3 U.S. Securities Law Considerations Applicable to U.S. Sponsors of Offshore Funds ...... 12-21 § 12:3.1 Section 7(d) of the Investment Company Act ..... 12-21 Proofs § 12:3.2 Section 5 of the Securities Act...... 12-22 § 12:3.3 Section 3(c)(1) and Section 3(c)(7) Funds...... 12-28 [A] Section 3(c)(1) ...... 12-28 [B] Section 3(c)(7)—Qualified Purchaser Fund Exception ...... 12-31 [B][1] Qualified Purchaser Defined...... 12-31

4th [B][2] Pension Plans As Qualified Purchasers ...... 12-33 [B][3] Other Qualified Purchaser Issues ...... 12-34 [B][4] Conversion from a Section 3(c)(1) Fund to a Section 3(c)(7) Fund...... 12-34 [B][5] Coordination with CFTC Exemptive Rules..... 12-34

(Fin. Prod. Fund., Rel. #10, 11/17) xlix FINANCIAL PRODUCT FUNDAMENTALS

[C] Integration with Foreign Public Offerings...... 12-35 [D] Integration of Section 3(c)(1) and Section 3(c)(7) Funds ...... 12-37 [E] Use of Section 3(c)(1) and Section 3(c)(7) Funds in Master/Feeder Structures ...... 12-37 [F] Federal Income Tax Implications ...... 12-38 § 12:3.4 Investment Adviser Registration and Reporting Requirements...... 12-39 [A] Investment Adviser Registration Requirements .... 12-39 [B] Registered Investment Adviser Reporting Requirements ...... 12-41 § 12:3.5 Regulation S and Related Interpretations...... 12-43 § 12:3.6 Development of the Definition of “U.S. Person” Under U.S. Securities Laws...... 12-47 § 12:3.7 Rule 144A ...... 12-47 § 12:3.8 Offshore Funds Conducting Various Administrative Operations in the United States.... 12-48 § 12:3.9 Extraterritorial Application of Anti-Fraud Provisions of the U.S. Securities Laws...... 12-49 § 12:3.10 Use of Electronic Means for Prospectus Delivery and Marketing of Investment Products ...... 12-50

11/07/17 [A] E-Delivery of Form ADV...... 12-51 § 12:3.11 Anti-Money Laundering Programs...... 12-52 § 12:3.12 Commodities Law Issues Affecting Non-U.S. Funds with U.S. Contacts...... 12-55 [A] Exemption from CFTC Registration As a CPO: Limited Futures Trading Exemption ...... 12-56 [B] CPO and CTA Registration Analysis and Process ...... 12-57 [C] Available Alternative to Part 4 Requirements Under Rule 4.7 ...... 12-60 [D] Exemptions from CFTC Registration As a CTA: Rules 4.14(a)(4), 4.14(a)(5), and 4.14(a)(8)...... 12-61 Proofs [E] Exemptions from CFTC Registration As a CTA: Rule 4.14(a)(10)...... 12-61 [F] “Foreign Intermediaries” Exemption...... 12-62 [G] “Foreign Futures” Exemption...... 12-62 § 12:3.13 Commodities and Securities Law Issues Affecting Non-U.S. Funds Engaged in

4th the OTC Derivatives Markets with U.S. Contacts...... 12-65 [A] Scope of Products Covered by Title VII ...... 12-66 [A][1] Covered OTC Derivatives ...... 12-66 [A][2] OTC Derivatives That Are Not Covered...... 12-66

l Table of Contents

[B] Clearing Requirements for Swaps ...... 12-67 [B][1] Swaps That Must Be Cleared ...... 12-67 [B][2] Status of Non-Cleared Swaps; Margining...... 12-68 [C] Exchange Trading of Swaps...... 12-68 [D] Major Swap Participants ...... 12-69 [E] Cross-Border Application of the U.S. Swaps Rules; U.S. Contacts ...... 12-70 [E][1] CFTC U.S. Person Definition for Clearing and Reporting Swaps...... 12-70 [E][2] CFTC and Prudential Regulator U.S. Person Definition for Margining Uncleared Swaps and Uncleared Security-Based Swaps with a Counterparty Subject to Prudential Regulator Regulations ...... 12-72 § 12:3.14 Broker-Dealer and Banking Law Issues...... 12-73 [A] Broker-Dealer Registration ...... 12-73 [B] Banking Law ...... 12-74 [B][1] The Gramm-Leach-Bliley Act...... 12-74 [B][2] Regulation R ...... 12-74 [B][3] The Volcker Rule ...... 12-75 § 12:4 U.S. Federal Income Tax Considerations

11/07/17 Affecting Offshore Funds...... 12-78 § 12:4.1 U.S. Tax Law Issues Relating to the Marketing of Shares of Non-U.S. Funds in the U.S...... 12-78 [A] U.S. Taxation of Non-U.S. Fund Treated As a Corporation for U.S. Tax Purposes ...... 12-78 [B] U.S. Taxation of U.S. Shareholders of Non-U.S. Fund ...... 12-80 [C] U.S. Taxation of Non-U.S. Fund Treated As a Partnership for U.S. Tax Purposes ...... 12-82 § 12:4.2 U.S. Tax Law Issues Relating to the Creation and Offering by U.S. Firms of Non-U.S. Investment Funds ...... 12-82 [A] Services Provided Through a U.S. Entity...... 12-82 Proofs [B] Services Provided Through a Non-U.S. Entity..... 12-83 § 12:5 Compliance with the Provisions of ERISA...... 12-83 § 12:6 Registration of a Foreign Fund in the United States..... 12-85 § 12:6.1 Exemptive Standard of Section 7(d) ...... 12-86 § 12:6.2 Rule 7d-1 and Funds Organized in (Primarily) Common Law Jurisdictions ...... 12-86

4th § 12:6.3 SEC Guidelines on Registration of Foreign Funds ...... 12-87 § 12:6.4 Further SEC and Industry Initiatives...... 12-89 § 12:6.5 Foreign Funds Using American Depositary Receipts (ADRs) ...... 12-90

(Fin. Prod. Fund., Rel. #10, 11/17) li FINANCIAL PRODUCT FUNDAMENTALS

§ 12:7 Marketing Shares of U.S. Funds Abroad ...... 12-92 § 12:7.1 Applicability of the Securities Act to the Offer and Sale of Fund Shares Outside the United States ..... 12-92 [A] Rule 482 Advertisements ...... 12-94 [B] Rule 482 Advertisements and the Foreign Broker-Dealer ...... 12-94 § 12:7.2 Applicability of the Investment Company Act to the Offer and Sale of Investment Company Shares Outside the United States...... 12-95 [A] Supplemental Sales Literature...... 12-95 § 12:8 European Regulatory Issues...... 12-96 § 12:8.1 UCITS Directive...... 12-96 [A] Eligible Investments...... 12-97 [B] Diversification Requirements...... 12-99 [C] UCITS III—The Product and Management Directive ...... 12-100 [C][1] The Product Directive ...... 12-100 [C][2] The Management Directive...... 12-102 [C][3] UCITS IV ...... 12-103 [C][4] UCITS V ...... 12-104 [C][5] UCITS VI ...... 12-106

11/07/17 § 12:8.2 Markets in Financial Instruments Directive...... 12-106 § 12:8.3 Directive on Alternative Managers ...... 12-110 [A] Operational, Organizational and Leverage Requirements ...... 12-111 [B] Disclosure Requirements ...... 12-111 [C] Depositaries and Delegation ...... 12-112 [D] Compensation Restrictions...... 12-112 [E] Third-Country Issues and Passporting ...... 12-113 [F] Private Placements...... 12-115 § 12:8.4 Significance of EU Regulatory Initiatives...... 12-116 Appendix 12A Comparative Guide to Offshore

Proofs Investment Products ...... App. 12A-1

Chapter 13 Commodity Pools Susan C. Ervin § 13:1 Introduction ...... 13-2

4th § 13:2 Background: Futures and Swaps Regulation in the United States...... 13-3 § 13:2.1 Definitions: Commodities, Derivatives, Swaps, and Futures ...... 13-4

lii Table of Contents

§ 13:2.2 Key Parties in the Commodity Pool Marketplace.... 13-5 [A] Commodity Pools ...... 13-5 [B] Commodity Pool Operators ...... 13-6 [C] Commodity Trading Advisors ...... 13-7 [D] Futures Commission Merchants and Introducing Brokers ...... 13-7 [E] Floor Brokers and Floor Traders...... 13-7 [F] Swap Dealers ...... 13-7 [G] Accessing the Markets ...... 13-8 § 13:3 CFTC Regulation of Commodity Pools ...... 13-9 § 13:3.1 Registration of the Commodity Pool Operator ...... 13-9 Chart 13-1 The Commodity Pool Marketplace ...... 13-10 § 13:3.2 Disclosure, Reporting and Recordkeeping...... 13-11 § 13:3.3 Structural Requirements for Organization and Operation...... 13-11 § 13:3.4 Potential Investors ...... 13-12 § 13:3.5 Commodity Trading Advisor Regulation ...... 13-12 § 13:4 Special Regulatory Treatment for Certain Funds ...... 13-13 § 13:4.1 Mutual Funds and Other Regulated Investment Vehicles...... 13-13 [A] Generally...... 13-13

11/07/17 [B] Special Rules for Registered Investment Companies...... 13-15 § 13:4.2 Limited Commodity Interest Trading Exemption...... 13-15 § 13:4.3 Rescinded Sophisticated Investor Exemption...... 13-16 § 13:4.4 Pools Restricted to “Qualified Eligible Persons”..... 13-17 § 13:4.5 Rule 4.12(b): Pools Primarily Engaged in Securities Transactions ...... 13-20 § 13:4.6 Rule 4.13: Non-Profit and Small Pools...... 13-21 § 13:5 Offshore Commodity Funds...... 13-22 Chart 13-2 U.S. Commodity Pool Regulation: When It Applies ...... 13-23 § 13:5.1 Non-U.S. Fund Manager; Non-U.S. Proofs Participants; Not Organized or Operated in the U.S.—Not Subject to Pool Regulation ...... 13-24 § 13:5.2 Offshore Fund Manager Marketing Offshore Fund to U.S. and Non-U.S. Participants—Full Commodity Pool Regulation Subject to “Foreign Futures” Exemption...... 13-24

4th § 13:5.3 U.S. Fund Manager Offering Offshore Fund Only to Non-United States Persons—Partial Regulation ...... 13-26

(Fin. Prod. Fund., Rel. #10, 11/17) liii FINANCIAL PRODUCT FUNDAMENTALS

§ 13:5.4 U.S. Fund Manager Operating Fund with U.S. Participants—Full U.S. Commodity Pool Regulation...... 13-28 § 13:6 Conclusion ...... 13-28

Chapter 14 Real Estate Investment Trusts Bart Sheehan & Marshall D. Feiring § 14:1 Introduction ...... 14-2 § 14:2 What Is a REIT? ...... 14-3 § 14:3 Background and Development of the REIT Industry...... 14-4 § 14:3.1 UPREITs ...... 14-6 § 14:3.2 DownREITs...... 14-8 § 14:4 The Creation of a REIT and the Securities Laws ...... 14-9 § 14:4.1 Avoidance of the Roll-Up Rules ...... 14-9 § 14:4.2 Preparation of the Registration Statement...... 14-10 [A] Form S-11—For Registration Under the Securities Act of Certain Real Estate Companies...... 14-11 [B] SEC Release No. 33-6900...... 14-11 11/07/17 [C] Selected Disclosure Requirements ...... 14-11 § 14:5 REITs and the Sarbanes-Oxley Act of 2002 ...... 14-12 § 14:6 REITs and Securities Act Reform ...... 14-13 § 14:7 Mortgage REITs and the Investment Company Act...... 14-14 § 14:8 Qualification Under the Tax Code ...... 14-15 § 14:8.1 Requirements for Qualification...... 14-15 § 14:8.2 Annual Gross Income Tests...... 14-16 [A] Rents from Real Property...... 14-17 [B] Interest on Obligations Secured by Real Property...... 14-19 [C] Income from Hedging...... 14-20

Proofs [D] Foreign Currency Exchange Gains...... 14-21 § 14:8.3 Failure to Meet Annual Income Tests...... 14-22 § 14:8.4 Quarterly Asset Tests...... 14-22 [A] In General...... 14-22 [B] Real Estate Assets ...... 14-23 § 14:8.5 Failure to Meet Quarterly Asset Tests...... 14-24 § 14:8.6 Application of Annual Income Tests and 4th Quarterly Asset Tests to Certain REIT Affiliates...... 14-25 § 14:8.7 Failure to Meet Other REIT Requirements...... 14-26

liv Table of Contents

§ 14:8.8 Distributions...... 14-27 [A] Annual Distribution Requirements ...... 14-27 [B] Expiration of Special Temporary Rule for Stock Distributions...... 14-28 [C] FATCA and the “Medicare Tax” on Investment Income...... 14-29 § 14:8.9 Deficiency and Consent Dividends...... 14-29 § 14:8.10 Shareholder Tests...... 14-30 § 14:8.11 Excess Share Provisions ...... 14-31 § 14:8.12 Qualification and Election ...... 14-31 § 14:8.13 Limitations on Sale or Disposition of Assets...... 14-32 § 14:8.14 Mortgage REITs and Special Considerations Under the Tax Code...... 14-33 § 14:9 REITs and the Capital Markets...... 14-34 § 14:10 Conclusion ...... 14-34 Appendix 14A Form S-11: Registration Statement Under the Securities Act for Certain Real Estate Companies ...... App. 14A-1 11/07/17 Proofs 4th

(Fin. Prod. Fund., Rel. #10, 11/17) lv FINANCIAL PRODUCT FUNDAMENTALS VOLUME 2

Table of Chapters...... vii

Chapter 15 Private Equity Funds and Advisers: Structural Features; Tax and Regulatory Considerations; and Other Issues, Trends, and Future Challenges Amanda N. Persaud & Adrienne Atkinson § 15:1 Introduction ...... 15-3 § 15:1.1 What Is a Private Equity Fund? ...... 15-3 § 15:2 A Typical Private Equity Fund ...... 15-4 § 15:2.1 Fund Structure ...... 15-4 § 15:2.2 Management of the Fund ...... 15-5 § 15:2.3 Allocation of Profits ...... 15-7 § 15:2.4 Other Common Provisions...... 15-8 § 15:3 Form of the Private Equity Fund (Tax and Liability Issues) ...... 15-10

11/07/17 § 15:3.1 Partnerships ...... 15-10 [A] Tax Considerations of the Partnership Form ...... 15-10 [A][1] No Federal Income Tax at the Fund Level...... 15-10 [A][2] Tax Considerations for Tax-Exempt Organizations ...... 15-12 [A][3] Tax Considerations for Foreign Persons...... 15-14 [A][4] Special Tax Issues for Sovereign Wealth Investors ...... 15-16 [A][5] Pass-Through of Losses to Equity Owners...... 15-16 [A][6] Tax-Free Distribution of Property to Equity Owners ...... 15-17 [A][6][a] ...... 15-17 [A][6][b] Property...... 15-17 Proofs [A][6][c] Marketable Securities ...... 15-18 [A][7] Tax-Favored Treatment for Fund Sponsors ...... 15-18 [A][7][a] Tax-Favored Treatment of General Partner’s Carry ...... 15-18 [A][7][b] Management Fee Waivers...... 15-19 [A][8] Utility of Foreign-Situs Partnerships in Foreign Investments ...... 15-19 4th [B] Other Non-Tax Advantages of the Partnership Form ...... 15-20 [B][1] Limited Liability ...... 15-20

lvi Table of Contents

§ 15:3.2 Limited Liability Company (LLC)...... 15-21 [A] Tax Issues ...... 15-22 [B] Liability Issues ...... 15-22 [C] Partnerships Still Predominate...... 15-23 § 15:4 ERISA Issues ...... 15-23 § 15:5 Securities Law Issues...... 15-28 § 15:5.1 Statutory Exemption: Section 4(a)(2) ...... 15-29 § 15:5.2 Regulation D...... 15-30 [A] Rule 506...... 15-31 [B] Look-Through ...... 15-35 [C] Integration ...... 15-36 § 15:5.3 Other Exemptions...... 15-37 § 15:6 Investment Company Act of 1940...... 15-38 § 15:6.1 Private Investment Fund Exemption ...... 15-40 [A] One Hundred Beneficial Owners Limitation ...... 15-40 [B] Look-Through Provisions...... 15-40 [B][1] Automatic Statutory Look-Through...... 15-41 [B][2] Secondary Look-Through Rules ...... 15-41 [C] Knowledgeable Employees...... 15-42 § 15:6.2 Qualified Purchaser Fund Exemption ...... 15-43 § 15:7 Investment Advisers Act of 1940 ...... 15-46

11/07/17 § 15:7.1 Consequences of Registration ...... 15-46 § 15:7.2 Jurisdictional Provisions and Exemptions Under Dodd-Frank...... 15-53 [A] Jurisdictional Provisions ...... 15-53 [B] Exemptions from Registration ...... 15-54 [B][1] Venture Capital Fund Exemption ...... 15-54 [B][2] Private Fund Adviser Exemption ...... 15-56 [B][3] Foreign Private Adviser Exemption...... 15-56 [B][4] Exempt Reporting Advisers...... 15-57 [C] State Regulation...... 15-57 § 15:7.3 Carried Interest Exemptions...... 15-58 [A] Qualified Purchaser Funds...... 15-58 [B] Rule 205-3: “Qualified Client” Exemption ...... 15-58 Proofs § 15:8 Additional Regulations ...... 15-59 § 15:8.1 Gramm-Leach-Bliley Act Privacy Rule ...... 15-59 § 15:8.2 Gramm-Leach-Bliley Act Safeguards Rule...... 15-61 § 15:8.3 “Pay-to-Play,” Placement Agent Regulations and Lobbying Laws ...... 15-62 § 15:8.4 EU AIFM Directive ...... 15-65

4th § 15:8.5 Foreign Corrupt Practices Act...... 15-67 § 15:8.6 Registration As a Broker-Dealer...... 15-67 § 15:9 Issues, Trends, and Future Challenges ...... 15-68 § 15:9.1 SEC Enforcement Focus on the Private Equity Industry ...... 15-68 § 15:9.2 PATRIOT Act Anti-Money Laundering Programs... 15-70

(Fin. Prod. Fund., Rel. #10, 11/17) lvii FINANCIAL PRODUCT FUNDAMENTALS

Chapter 16 An Overview of the Formation and Operation of Exchange-Traded Products Bibb L. Strench & Alexandre V. Rourk § 16:1 Introduction ...... 16-2 § 16:2 Product Description ...... 16-3 § 16:2.1 Exchange-Traded Funds (ETFs) ...... 16-3 § 16:2.2 Exchange-Traded Vehicles (ETVs) ...... 16-4 § 16:2.3 Exchange-Traded Notes (ETNs) ...... 16-4 § 16:3 ETP Registration ...... 16-5 § 16:3.1 Registration of Securities ...... 16-5 [A] ETFs...... 16-5 [B] ETVs and ETNs...... 16-6 § 16:3.2 Entity Registration ...... 16-6 § 16:3.3 CFTC Registration...... 16-6 § 16:4 Tax Considerations ...... 16-7 § 16:4.1 ETFs...... 16-7 § 16:4.2 ETVs ...... 16-7 § 16:4.3 ETNs...... 16-7 § 16:5 Exemptive Relief...... 16-7 § 16:5.1 ETFs...... 16-8 11/07/17 § 16:5.2 ETVs and ETNs...... 16-9 § 16:6 Listing on an Exchange ...... 16-9 § 16:7 Governance Standards...... 16-10 § 16:7.1 ETFs...... 16-10 § 16:7.2 ETVs and ETNs...... 16-11 § 16:8 Operational Issues...... 16-11 § 16:8.1 Capital ...... 16-11 [A] ETFs...... 16-11 [B] ETVs and ETNs...... 16-12 § 16:8.2 Marketing ...... 16-12 § 16:8.3 Create/Redeem Process ...... 16-13 [A] ETFs and ETVs...... 16-13

Proofs [B] ETNs...... 16-13 § 16:8.4 Calculation of ...... 16-13 [A] ETFs...... 16-13 [B] ETVs ...... 16-14 [C] ETNs...... 16-14 § 16:8.5 Fees ...... 16-15 [A] ETFs...... 16-15

4th [B] ETVs ...... 16-15 [C] ETNs...... 16-15 § 16:9 Domicile...... 16-16 § 16:9.1 ETFs...... 16-16 § 16:9.2 ETVs and ETNs...... 16-16 § 16:10 Conclusion ...... 16-16

lviii Table of Contents

Chapter 17 Exchange-Traded Funds Stuart M. Strauss & Adam T. Teufel § 17:1 Background...... 17-2 § 17:2 Organizational Issues ...... 17-3 § 17:2.1 Form of Organization ...... 17-3 § 17:2.2 Mechanics of Purchases and Sales...... 17-4 [A] Exchange Transactions...... 17-4 [B] Transactions...... 17-4 [B][1] Purchases ...... 17-4 [B][2] Redemptions ...... 17-5 § 17:2.3 The Process ...... 17-6 § 17:2.4 Distribution and Fees ...... 17-6 § 17:2.5 Authorized Participants and Authorized Participant Agreements...... 17-7 § 17:2.6 Marketing and Advertising ...... 17-7 § 17:2.7 Tax Matters...... 17-8 [A] ETFs As Compared to Mutual Funds...... 17-8 [B] Tax Implications for Purchaser ...... 17-8 [C] Tax Implications for Redeemer ...... 17-8 § 17:3 Investment Company Act Issues ...... 17-8

11/07/17 § 17:3.1 Registration As an Open-End Company or a ...... 17-8 § 17:3.2 Investment in ETFs by Fund of Funds ...... 17-9 § 17:3.3 Section 17(a) ...... 17-10 § 17:3.4 Section 18 ...... 17-11 § 17:3.5 Section 22(d) and Rule 22c-1...... 17-11 § 17:3.6 Section 22(e) ...... 17-12 § 17:3.7 Section 26 ...... 17-13 § 17:4 Exchange Act Issues ...... 17-13 § 17:4.1 Regulation M—Purchases During an Underwriting ...... 17-13 § 17:4.2 Tender Offers ...... 17-15 § 17:4.3 Margin ...... 17-15 Proofs § 17:4.4 Disclosure Requirements ...... 17-16 [A] Confirmations...... 17-16 [B] Broker Relationship...... 17-16 [C] Advance Notice of Corporate Actions...... 17-16 § 17:4.5 Sections 13(d) and 16(a) ...... 17-17 § 17:4.6 Exchange Listing ...... 17-17

4th [A] Generic Listing Standards...... 17-18 [B] 19b-4 Process ...... 17-18 § 17:5 New Products and Recent Developments ...... 17-18

(Fin. Prod. Fund., Rel. #10, 11/17) lix FINANCIAL PRODUCT FUNDAMENTALS

§ 17:5.1 Development of ETFs ...... 17-18 [A] Actively Managed ETFs ...... 17-18 [B] Exchange-Traded Managed Funds ...... 17-19 [C] Non-Transparent Actively Managed ETFs ...... 17-20 [D] Global Distribution of U.S. ETFs ...... 17-21 [E] ETFs on Alternative Asset Classes ...... 17-21 [F] Investment in ETFs by Retirement Plans ...... 17-22 § 17:5.2 Regulatory Developments Pertaining to ETFs ..... 17-22 [A] Proposed Rule 6c-11 ...... 17-22 [B] Exemptive and No-Action Relief...... 17-22 [B][1] Leveraged and Inverse ETFs ...... 17-22 [B][2] Self-Indexing ETFs...... 17-23 [B][3] Master-Feeder Structures ...... 17-23 [C] Listing Standards ...... 17-24 [D] Modernization of Reporting Requirements, with Particular Emphasis on Risk Disclosures .... 17-25 [E] Liquidity Rule and the “In-Kind ETF” ...... 17-25

Chapter 18 College Savings Plans Steven B. Boehm & Michael B. Koffler 11/07/17 § 18:1 Overview of 529 Plans ...... 18-3 § 18:1.1 Prepaid Plans vs. Savings Plans ...... 18-3 [A] Prepaid Plans ...... 18-3 [A][1] Savings Plans ...... 18-5 § 18:1.2 Investment Structure ...... 18-6 Figure 18-1 Investment Structure of a Typical Savings Plan...... 18-7 § 18:2 Mechanics of Participation...... 18-9 § 18:3 Tax Benefits...... 18-10 § 18:3.1 Federal...... 18-10 § 18:3.2 State...... 18-11 § 18:4 The Cast of Characters ...... 18-11

Proofs Figure 18-2 Parties Involved in Providing Services to a Trust ...... 18-12 § 18:5 The Regulatory Framework ...... 18-13 § 18:5.1 Exemptions from the Federal Securities Laws ..... 18-13 § 18:5.2 The MSRB’s Rules Govern ...... 18-14 § 18:5.3 The MSRB and the Regulatory Structure for Municipal Securities...... 18-14 4th § 18:5.4 Amending the MSRB’s Rules for Savings Plans .... 18-17 § 18:6 Regulation Under the MSRB’s Rules...... 18-17 § 18:6.1 Classifications of Principals and Representatives, Testing and Continuing Education: Rule G-3 ...... 18-17

lx Table of Contents

§ 18:6.2 Confirmations and Point-of-Sale Disclosure...... 18-19 § 18:6.3 Conduct of Municipal Securities Activities: Rule G-17 ...... 18-21 [A] General Requirements ...... 18-21 [B] Additional Responsibilities for Savings Plans ...... 18-23 [B][1] Established Industry Sources ...... 18-24 [B][2] Additional Disclosure Obligations...... 18-25 [B][3] Use of the Official Statement to Satisfy Point-of-Sale Disclosure Obligations ...... 18-27 § 18:6.4 Suitability of Recommendations and Transactions: Rule G-19 ...... 18-28 § 18:6.5 Gifts, Gratuities, and Non-Cash Compensation: Rule G-20...... 18-30 § 18:6.6 Advertising: Rule G-21 ...... 18-33 [A] Advertisements ...... 18-33 [A][1] General Disclosures...... 18-33 [A][2] Performance Data Disclosures...... 18-34 [A][3] Format ...... 18-35 [A][4] Calculation and Display of Performance Data.... 18-36 [A][5] Nature of Issuer and Security ...... 18-38 [A][6] Capacity of the Broker-Dealer and Other

11/07/17 Parties ...... 18-38 [A][7] Tax Consequences and Other Features...... 18-38 [A][8] Underlying Registered Securities ...... 18-39 [B] Do-Not-Call Registry ...... 18-39 § 18:6.7 Supervision: Rule G-27...... 18-40 § 18:6.8 Pricing and Commissions: Rule G-30 ...... 18-41 § 18:6.9 Disclosure for Savings Plans: Rule G-32 ...... 18-43 [A] Delivery by Primary Distributors...... 18-44 [B] Proposed Centralized Electronic System to Collect Information on Savings Plans ...... 18-45 § 18:6.10 “Pay-to-Play”: Rule G-37 ...... 18-45 [A] Substantive Provisions ...... 18-45 [B] Persons Covered...... 18-47 Proofs [C] Reporting Requirements...... 18-48 [D] Application of Rule G-37 to Savings Plans...... 18-49 [D][1] Status of Selling Broker-Dealers...... 18-50 Figure 18-3 MSRB Distribution Structure ...... 18-50 [D][2] Status of Wholesalers ...... 18-51 [D][3] The Effect of a Ban on Municipal Securities

4th Business Under Rule G-37 Arising During a Pre-Existing Engagement Relating to Municipal Fund Securities...... 18-51 [E] Indirect Violations ...... 18-52 [F] Exemptions ...... 18-53

(Fin. Prod. Fund., Rel. #10, 11/17) lxi FINANCIAL PRODUCT FUNDAMENTALS

§ 18:6.11 Solicitation of Municipal Securities Business: Rule G-38 ...... 18-54 § 18:7 Rule 15c2-12 Under the Exchange Act ...... 18-55 § 18:7.1 Initial Disclosure ...... 18-55 § 18:7.2 Continuing Disclosure...... 18-56 § 18:7.3 Financial Statements ...... 18-57 § 18:8 Official Statement Content ...... 18-57 § 18:9 Bank Distribution ...... 18-58

Chapter 19 A Primer on Derivative Contracts and Their Regulation James A. Overdahl & Robert S. Zwirb § 19:1 Introduction ...... 19-2 § 19:2 Derivatives Defined...... 19-3 § 19:2.1 Generally...... 19-3 § 19:2.2 Types of Derivative Contracts...... 19-5 [A] Forward Contracts ...... 19-5 [B] Futures Contracts ...... 19-6 [B][1] Generally ...... 19-6 [B][2] Forwards Versus Futures...... 19-7 11/07/17 [C] Options ...... 19-9 [C][1] Generally ...... 19-9 [C][2] Over the Counter Options...... 19-11 [C][3] OTC Products ...... 19-11 [D] Swaps...... 19-12 [E] Structured Notes...... 19-14 § 19:3 Size of the Market for Derivatives...... 19-15 § 19:3.1 Sources of Information and Data ...... 19-15 § 19:3.2 Exchange-Traded Derivatives ...... 19-15 § 19:3.3 Privately Negotiated Derivatives ...... 19-15 § 19:4 How Are Derivatives Used? ...... 19-16 § 19:4.1 Hedging...... 19-16

Proofs § 19:4.2 Lowering Costs ...... 19-17 § 19:4.3 Profit Opportunity ...... 19-17 § 19:4.4 Efficient Portfolio Management ...... 19-18 § 19:5 Regulation of Derivative Products...... 19-18 § 19:5.1 Generally...... 19-18 § 19:5.2 Legal Certainty for OTC Derivatives...... 19-19 § 19:5.3 Regulatory Reform for the Futures Industry ...... 19-22 4th § 19:5.4 Security Futures Products ...... 19-23 § 19:5.5 Legal Certainty for Exempt Commodities ...... 19-25 § 19:6 Post-CFMA Efforts to Increase Oversight of OTC Derivatives ...... 19-26

lxii Table of Contents

§ 19:7 Pre-Dodd-Frank Act Efforts to Increase Regulation of OTC Derivatives...... 19-28 § 19:8 Wall Street Transparency and Accountability Act of 2010 ...... 19-30 Appendix 19A 2016 Global Exchange-Traded Derivatives Contract Volume (Futures and Options)... App. 19A-1 Appendix 19B Total Exchange-Traded Derivatives by Region ...... App. 19B-1 Appendix 19C Top Ten Global Futures Contracts (by 2016 Volume)...... App. 19C-1 Appendix 19D Top Ten Global Derivatives Exchanges (by 2016 Volume)...... App. 19D-1 Appendix 19E Privately Negotiated Derivatives Outstanding (Notional Amounts in $ Billions) ...... App. 19E-1 Appendix 19F Global Futures and Options Traded by Category...... App. 19F-1

11/07/17 Chapter 20 An Introduction to Variable Insurance Products Clifford E. Kirsch & Dodie Kent § 20:1 Background—Variable Annuities and Variable Life Insurance...... 20-3 § 20:2 Variable Annuities in Today’s Marketplace ...... 20-3 § 20:2.1 Generally...... 20-3 § 20:2.2 Variable Annuities in the Retail Marketplace ...... 20-4 [A] Generally...... 20-4 [B] Insurance and Other Guarantee Features ...... 20-5 Table 20-1 Variable Annuity Riders...... 20-9 [C] Current Product-Related Developments ...... 20-9 Proofs [C][1] Recent Regulatory-Driven Product Developments ...... 20-10 [D] Variable Annuity Share Classes ...... 20-11 [E] Unique Investment Features...... 20-13 § 20:2.3 Annuities Sold in the Retirement Marketplace..... 20-14 § 20:3 Variable Life Insurance in Today’s Marketplace ...... 20-14

4th § 20:3.1 Generally...... 20-14 § 20:3.2 Variable Life Insurance in the Retail Marketplace ...... 20-15 § 20:3.3 Life Insurance Sold to Individuals Through Employers and Associations ...... 20-16

(Fin. Prod. Fund., Rel. #10, 11/17) lxiii FINANCIAL PRODUCT FUNDAMENTALS

§ 20:3.4 Life Insurance Sold to Businesses (Corporate Owned Life Insurance)...... 20-16 § 20:4 Legal Structure and Changes...... 20-17 Figure 20-1 Contributions and Premium Payments ...... 20-18 § 20:5 Regulatory Treatment of Variable Products ...... 20-19 § 20:5.1 Generally...... 20-19 § 20:5.2 Product Design and Approval ...... 20-20 [A] State Insurance Requirements Regarding Product Design and Approval ...... 20-20 [B] Federal Securities Laws Regarding Product Design and Approval ...... 20-21 [B][1] Background ...... 20-21 [B][2] Private Offering Exception ...... 20-23 [B][3] Retirement Plan Exemption...... 20-23 [C] State Securities Laws ...... 20-23 § 20:5.3 Product Administration ...... 20-24 § 20:5.4 Product Distribution ...... 20-26 [A] Background ...... 20-26 [B] FINRA Regulation...... 20-27 [B][1] Generally ...... 20-27 [B][2] Requirements Governing the Suitability of

11/07/17 Variable Annuity Transactions...... 20-28 [B][2][a] NASD’s Suitability Rule Applying to Recommended Transactions—FINRA Rule 2111...... 20-28 [B][2][b] Guidance Concerning Variable Annuity Exchanges...... 20-29 [B][3] Controls Over Marketing Material: Review, Content, and Filing Requirements...... 20-30 [B][4] Requirement to Adopt and Implement a Supervisory System Over Sales Activity...... 20-31 [B][4][a] Written Supervisory Procedures...... 20-31 [B][4][b] Chain of Supervision...... 20-31 [B][4][c] Approval of Transactions...... 20-31 Proofs [B][4][d] Approval of Correspondence ...... 20-31 [B][4][e] Annual Compliance Meetings with Representatives...... 20-31 [B][4][f] Office Designations...... 20-32 [B][4][g] Inspections ...... 20-32 [B][4][h] “Outside” Activities of a Representative...... 20-32

4th [B][4][i] Continuing Education Requirements ...... 20-32 [B][5] Requirement to Establish an Effective Compliance Program ...... 20-33 [B][6] Controls Over Compensation...... 20-33 [B][7] Examinations and Enforcement...... 20-33

lxiv Table of Contents

[C] Group Variable Annuities—Regulation Under FINRA Rules...... 20-35 § 20:5.5 Marketing ...... 20-35 [A] Generally...... 20-35 [B] SEC Rules ...... 20-36 [C] FINRA Rules...... 20-37

Chapter 21 Organization of Private Investment Funds: Basic Structural and Legal Issues Peter M. Rosenblum § 21:1 Introduction ...... 21-2 § 21:2 Basic Investment Fund...... 21-3 § 21:3 Side-by-Side Funds ...... 21-4 Figure 21-1 Side-by-Side Structure ...... 21-6 § 21:4 Mini-Master-Feeder Model...... 21-7 Figure 21-2 Mini-Master-Feeder Structure ...... 21-8 § 21:5 Legal Background ...... 21-8 § 21:5.1 Securities Act of 1933 (the “Securities Act”) ...... 21-9 § 21:5.2 Securities Exchange Act of 1934 (the “Exchange Act”)...... 21-11 11/07/17 § 21:5.3 Investment Company Act of 1940 ...... 21-11 § 21:5.4 Investment Advisers Act of 1940...... 21-14 § 21:5.5 State Securities Regulation...... 21-17 [A] Offering...... 21-17 [B] Adviser Registration ...... 21-18 § 21:6 Tax Considerations ...... 21-19 § 21:6.1 “Carried Interest” Versus ...... 21-19 [A] Characterization ...... 21-19 [A][1] Carried Interest...... 21-19 [A][2] Performance Fee...... 21-19 [B] Tax Considerations ...... 21-20 [B][1] Carried Interest...... 21-20

Proofs [B][2] Performance Fee...... 21-22 [B][2][a] Investment Adviser’s Tax Treatment ...... 21-22 [B][2][b] Investors’ Tax Treatment...... 21-22 [B][3] State Tax Considerations ...... 21-23 § 21:6.2 Partnership Interests As Employee Compensation...... 21-23 [A] Business Issues ...... 21-23 4th [B] Tax Issues ...... 21-24 § 21:7 Legal Issues Under the Investment Company Act and the Investment Advisers Act ...... 21-24

(Fin. Prod. Fund., Rel. #10, 11/17) lxv FINANCIAL PRODUCT FUNDAMENTALS

§ 21:7.1 Section 3(c)(1) of the Investment Company Act...... 21-24 [A] Public Offering...... 21-25 [B] Number of Beneficial Owners...... 21-27 [B][1] Husband and Wife ...... 21-27 [B][2] Participant-Directed Investments by Benefit Plans...... 21-28 [B][3] Integration ...... 21-30 [B][4] Concentration of Investment...... 21-33 [B][5] Section 3(c)(1)(A) Attribution...... 21-34 [B][6] Certain Transferees...... 21-36 § 21:7.2 Section 3(c)(7) of the Investment Company Act...... 21-36 § 21:7.3 Investment Advisers Act...... 21-38 [A] Registration...... 21-38 [B] Exemptions ...... 21-39 [B][1] Private Fund Adviser Exemption ...... 21-39 [B][2] Venture Capital Fund Adviser Exemption ...... 21-40 [B][3] Exemption for Foreign Private Advisers...... 21-43 [C] Prohibition from Registration ...... 21-45 [D] Performance-Based Fees ...... 21-47

11/07/17 [D][1] Clients Qualifying ...... 21-48 [D][2] Additional Limitations...... 21-49 [D][3] Other Limits on Performance Fees ...... 21-49 [E] Antifraud Provisions ...... 21-50 § 21:8 Fund Data on the Worldwide Web...... 21-50

Chapter 22 Real Estate Mortgage Investment Conduits (REMICs) Marshall D. Feiring & Robert M. Kreitman § 22:1 Overview ...... 22-3 § 22:1.1 Generally and Recent Developments ...... 22-3

Proofs [A] Generally...... 22-3 [B] Recent Developments ...... 22-4 [C] Bipartisan Budget Act of 2015 ...... 22-5 § 22:1.2 Benefits of REMIC Qualification ...... 22-6 § 22:1.3 Drawbacks of REMIC Qualification ...... 22-6 § 22:1.4 Internal Revenue Code Compels Use of REMICs for Securitizing Mortgage Loans...... 22-7 4th § 22:2 Requirements for Qualification As a REMIC...... 22-8 § 22:2.1 Generally...... 22-8 § 22:2.2 Asset Test...... 22-8 [A] Generally...... 22-8

lxvi Table of Contents

[B] Qualified Mortgages...... 22-9 [B][1] Generally ...... 22-9 [B][2] Principally Secured...... 22-9 [B][3] Interests in Real Property ...... 22-10 [B][4] Credit Enhancement Contracts ...... 22-11 [B][5] Permitted Investments...... 22-11 § 22:2.3 REMIC Election...... 22-12 § 22:2.4 Interests Issued to Investors ...... 22-12 [A] Regular Interests ...... 22-13 [B] Residual Interests...... 22-14 [C] Certain Rights Not Treated As REMIC Interests ...... 22-14 § 22:2.5 Arrangements Test...... 22-15 § 22:3 REMIC Formation ...... 22-15 § 22:4 Federal Income Tax Treatment of a REMIC...... 22-16 § 22:4.1 Pass-Through Status ...... 22-16 § 22:4.2 Determination of REMIC Taxable Income or Net Loss...... 22-17 § 22:4.3 Property Distributions ...... 22-17 § 22:4.4 Prohibited Transactions ...... 22-18 § 22:5 Federal Income Taxation of Regular Interest

11/07/17 Holders...... 22-19 § 22:5.1 Overview ...... 22-19 [A] Generally...... 22-19 [B] No Negative OID...... 22-20 [C] Basis...... 22-20 § 22:5.2 Regular Interests Received in Exchange for Property...... 22-20 § 22:6 Federal Income Taxation of Residual Interest Holders...... 22-21 § 22:6.1 Generally...... 22-21 [A] Income or Loss ...... 22-21 [B] Distributions...... 22-21 [C] Limitations on Losses...... 22-21 Proofs § 22:6.2 Adjusted Basis of Residual Interests ...... 22-22 § 22:6.3 Special Treatment of “Excess Inclusions” ...... 22-22 [A] Generally...... 22-22 [B] Special Rules for Residual Interests Held by REITs ...... 22-23 § 22:6.4 Restrictions on Transfers of Residual

4th Interests ...... 22-23 [A] Generally...... 22-23 [B] Stopping Transfers That Prevent Tax Being Imposed on Excess Inclusions ...... 22-23

(Fin. Prod. Fund., Rel. #10, 11/17) lxvii FINANCIAL PRODUCT FUNDAMENTALS

[C] Stopping Transfers to Foreign Persons Who Will Not Hold the Residual Interest in Connection with a U.S. Trade or Business...... 22-25 § 22:6.5 Wash Sale Rules and Dispositions of Residual Interests ...... 22-26 § 22:6.6 Inducement Payments ...... 22-26 § 22:7 Special Aspects of Commercial REMICs ...... 22-27 § 22:7.1 Overview of Commercial Loan REMICs...... 22-27 § 22:7.2 Defeasance of REMIC-Held Commercial Loans ...... 22-28 § 22:7.3 Modifications of Terms ...... 22-29 [A] Overview ...... 22-29 [B] Significant Modification Under Code Section 1001 ...... 22-30 [B][1] Modification ...... 22-30 [B][2] Significant...... 22-31 [C] Specific Exceptions for Modifications of REMIC-Held Mortgages...... 22-31 [C][1] General ...... 22-31 [C][2] How Far in the Future Can a Default Be Anticipated and Still Be “Reasonably

11/07/17 Foreseeable” ...... 22-32 [D] Other REMIC-Specific Exceptions ...... 22-32 [D][1] Satisfying the Post-Modification Principally Secured Test...... 22-33 [D][2] Satisfying the Post-Modification Principally Secured Test Where a Mortgage Loan Is Secured by Multiple Properties ...... 22-34 [D][2][a] Grandfathered Transaction...... 22-34 [D][2][b] Qualified Pay-Down Transaction...... 22-35 § 22:7.4 Foreclosure Property...... 22-36 [A] Generally...... 22-36 [B] Net Income from Foreclosure Property...... 22-36 [C] Foreign Investor Real Property Tax Act Proofs (FIRPTA) ...... 22-37 [D] Collateral Not Qualifying As Foreclosure Property—Swaps ...... 22-38 [E] Credit Enhancement Contracts ...... 22-38 Appendix 22A Application of OID Rules to REMIC Regular Interests ...... App. 22A-1 4th Appendix 22B Compliance with Specified Portion Rules ...... App. 22B-1

lxviii Table of Contents

Chapter 23 Alternatives to Traditional Securities Offerings Adam E. Fleisher, Joon Hur & Jesse M. Brush § 23:1 Introduction ...... 23-3 § 23:2 At-the-Market Offerings ...... 23-3 § 23:2.1 Overview ...... 23-3 § 23:2.2 Key Considerations ...... 23-4 § 23:2.3 Offering Process ...... 23-5 [A] Shelf Registration Statement...... 23-5 [B] Prospectus ...... 23-6 [C] Equity Distribution Agreement...... 23-7 [D] Ongoing Due Diligence ...... 23-8 [E] Announcement and Execution of Sales ...... 23-9 § 23:2.4 Legal and Regulatory Considerations...... 23-9 [A] Regulation M ...... 23-9 [B] Publication and Dissemination of Research Reports...... 23-11 [C] Other ...... 23-12 § 23:3 Block Trades...... 23-12 § 23:3.1 Overview ...... 23-12 § 23:3.2 SEC-Registered Blocks ...... 23-13

11/07/17 [A] Shelf Registration Statement...... 23-14 [B] Due Diligence ...... 23-15 [C] Selling Securityholders and Disclosure ...... 23-15 [D] Fixed Versus Variable Price Reoffer ...... 23-16 [E] Limited Premarketing ...... 23-17 § 23:3.3 Exempt Block Trades...... 23-18 [A] Rule 144...... 23-20 [B] Rule 144A ...... 23-22 [C] Regulation S...... 23-24 § 23:3.4 Other Considerations ...... 23-25 [A] Sections 13 and 16 of the Exchange Act...... 23-25 [B] FINRA...... 23-26 [C] Shareholder Approval...... 23-26 Proofs [D] Other ...... 23-27 § 23:4 Private Investment in Public Equity (PIPE)...... 23-27 § 23:4.1 Overview ...... 23-27 § 23:4.2 Key Considerations ...... 23-28 § 23:4.3 Structure ...... 23-29 § 23:4.4 Resale Registration Statement ...... 23-30

4th § 23:4.5 Communications with Potential Investors ...... 23-31 [A] Material Non-Public Information ...... 23-31 [B] JOBS Act ...... 23-31 § 23:4.6 Shareholder Approval—Stock Exchanges ...... 23-32

(Fin. Prod. Fund., Rel. #10, 11/17) lxix FINANCIAL PRODUCT FUNDAMENTALS

§ 23:4.7 Large Holder Considerations ...... 23-33 [A] Sections 13 and 16 ...... 23-33 [B] HSR Act...... 23-33 [C] Banking Regulation...... 23-34 [D] CFIUS...... 23-34 [E] DGCL Section 203 ...... 23-35 [F] Net Operating Loss Carryforwards ...... 23-35 § 23:4.8 Hedging-Related Considerations...... 23-36 § 23:4.9 Registered “PIPEs”—Registered Direct Offerings ...... 23-37 § 23:5 Rights Offerings ...... 23-38 § 23:5.1 Overview ...... 23-38 § 23:5.2 Structure ...... 23-39 [A] Exercise Price and Subscription Period ...... 23-40 [B] Transferability...... 23-41 [C] Underwriting or Backstop Commitments ...... 23-41 § 23:5.3 Legal and Regulatory Considerations...... 23-42 [A] Shareholder Approval and Large Holder Considerations...... 23-42 [B] SEC Registration ...... 23-43 [C] Securities Exchanges ...... 23-44

11/07/17 § 23:6 Structures Involving Public Investment Vehicles ...... 23-45 § 23:6.1 Special Purpose Acquisition Company (SPAC) .... 23-45 [A] Overview and Structure ...... 23-45 [B] Legal and Regulatory Considerations...... 23-47 [C] Challenges and Recent Structures...... 23-48 § 23:6.2 Business Development Company ...... 23-49 [A] Overview ...... 23-49 [B] Securities Law Considerations ...... 23-51 § 23:7 Other Strategic Transaction Structures ...... 23-51 § 23:7.1 Spin-offs...... 23-51 [A] Overview ...... 23-51 [B] Process and Related Considerations ...... 23-52 § 23:7.2 Reverse Mergers ...... 23-53 Proofs [A] Overview ...... 23-53 [B] Benefits and Risk ...... 23-53

Chapter 24 Exchange-Traded Notes and Similar Structured Notes

4th Lee Ann Anderson & George H. White III § 24:1 Introduction ...... 24-2 § 24:2 Product Description and Characteristics...... 24-3 § 24:2.1 Structured Investment ...... 24-3 § 24:2.2 Redemption...... 24-5

lxx Table of Contents

§ 24:2.3 Investor Fees ...... 24-6 § 24:2.4 Listing ...... 24-6 § 24:2.5 Comparison to ETFs and Structured Medium-Term Notes...... 24-6 [A] ETFs ...... 24-7 [B] Structured Medium-Term Notes...... 24-8 § 24:3 Background and Securities Law Issues ...... 24-8 § 24:3.1 No-Action Relief ...... 24-8 § 24:3.2 Regulation M: Rule 101 and Rule 102...... 24-9 § 24:3.3 Margin Rules: Exchange Act Section 11(d)(1) ...... 24-10 § 24:3.4 Short Selling Rules: Rule 200(g) of Regulation SHO and Former Rule 10a-1 ...... 24-10 § 24:3.5 SEC Request for Comment...... 24-11 § 24:4 Registration, Disclosure and Listing Requirements..... 24-12 § 24:4.1 SEC Registration ...... 24-12 § 24:4.2 Disclosure Requirements ...... 24-12 § 24:4.3 Opinions of Counsel...... 24-15 § 24:4.4 Liability Standards ...... 24-15 § 24:4.5 Listing Requirements ...... 24-15 § 24:5 Post-Offering Issues...... 24-16 § 24:5.1 Reopenings...... 24-16

11/07/17 § 24:5.2 Redemptions ...... 24-16 § 24:5.3 Inventory Sales ...... 24-17 § 24:6 Regulatory Focus and Recent Developments...... 24-17 § 24:6.1 Increased Focus on Structured Products ...... 24-17 § 24:6.2 FINRA and NYSE ...... 24-18 § 24:6.3 SEC ...... 24-21 § 24:7 Non-Listed Structured Medium-Term Notes ...... 24-22 § 24:8 Selected Issues...... 24-23 § 24:8.1 Taxation...... 24-23 § 24:8.2 Investment Company Act and Investment Advisers Act ...... 24-23 § 24:8.3 Commodities Exchange Act Issues ...... 24-24 § 24:8.4 Broker-Dealer Issues ...... 24-24 Proofs § 24:9 Conclusion ...... 24-25

Chapter 25 Insurance-Linked Securities Daniel A. Rabinowitz § 25:1 Introduction ...... 25-2 4th § 25:2 General Types of ILS ...... 25-3 § 25:2.1 ILS Based on Insurable Events...... 25-3 [A] Reinsurance...... 25-3 [B] Components/Issues...... 25-4

(Fin. Prod. Fund., Rel. #10, 11/17) lxxi FINANCIAL PRODUCT FUNDAMENTALS

[B][1] Threshold Regulatory Issues...... 25-4 [B][1][a] Statutory Definitions of Insurance...... 25-4 [B][1][b] Regulatory Relief ...... 25-5 [B][1][c] Regulatory Risk and Offering Restrictions ...... 25-7 [B][2] Components and Structuring ...... 25-10 [B][2][a] The SPV ...... 25-10 [B][2][b] The Indenture ...... 25-11 [B][2][c] Allocation of Loss Provisions ...... 25-12 [B][2][d] Reinsurance or other Risk-Transfer Agreement...... 25-13 [B][2][e] Offering Materials ...... 25-15 [B][2][f] Service Providers ...... 25-17 [B][2][g] Other Lines ...... 25-18 § 25:2.2 ILS Based on Redundant Reserves ...... 25-18 [A] Closed Block Securitization ...... 25-18 [B] Redundant Reserve Securitizations More Broadly ...... 25-20 § 25:3 NAIC and State Developments...... 25-22 § 25:3.1 Protected Cell Company Model Act ...... 25-22 [A] Securitization ...... 25-23 [B] Protected Cell...... 25-23

11/07/17 [C] Legal Identity ...... 25-24 [D] Directors’ Duty to Maintain Separateness...... 25-25 [E] Bankruptcy Remoteness Issues ...... 25-25 § 25:3.2 Special Purpose Reinsurance Vehicle Act...... 25-26 [A] SPRV Insurance Securitization...... 25-26 [B] Forming an SPRV...... 25-27 [C] Limitations on Use...... 25-27 § 25:3.3 Other State Laws ...... 25-28 [A] Captive Insurance Generally...... 25-28 [B] The Rise of Special Purpose Captives...... 25-29 [C] Regulatory Activity...... 25-30

Proofs Chapter 26 Introduction to Life Settlements Gary M. Brown § 26:1 Background...... 26-3 § 26:1.1 Life Insurance ...... 26-3 § 26:1.2 Life Insurance Policies as Transferrable Property..... 26-4 § 26:1.3 Life Settlements ...... 26-5 4th § 26:2 The Life Marketplace ...... 26-8 § 26:2.1 Generally...... 26-8 § 26:2.2 Characteristics of Life Insurance Policies...... 26-10 [A] The Insurance Policy—Generally...... 26-10 [B] Types of Insurance Products ...... 26-11

lxxii Table of Contents

[B][1] Term Insurance...... 26-11 [B][2] Permanent Life Insurance...... 26-11 [B][2][a] Whole Life Insurance ...... 26-12 [B][2][b] Universal Life Insurance (UL) ...... 26-12 [B][2][c] Limited Pay Life Insurance...... 26-13 [C] Parties to the Insurance Contract/Policy...... 26-13 [D] Special Policy Provisions...... 26-15 [E] Contestability...... 26-15 [F] Underwriting by the Insurance Company ...... 26-17 [G] Maturity—Collection of the Death Benefit...... 26-19 § 26:3 The Players in the Life Settlement Marketplace ...... 26-20 § 26:3.1 Insured/Policy Owner...... 26-20 [A] Generally...... 26-20 [B] Issues and Risks...... 26-21 [B][1] Possible Alternatives ...... 26-21 [B][2] Insured’s Identity and Medical Records...... 26-21 [B][3] Insured Contacts and Future Disclosure Obligations ...... 26-21 [B][4] Need For Insurance Coverage ...... 26-22 [B][5] Policy Replacement Issues ...... 26-22 [B][6] Public Assistance ...... 26-22

11/07/17 [B][7] Taxation...... 26-22 [B][8] Creditors and Bankruptcy...... 26-22 § 26:3.2 Financial Advisors/Producers/Brokers...... 26-22 § 26:3.3 Life Settlement Providers ...... 26-23 § 26:3.4 Investors or “Funders” ...... 26-24 [A] Generally...... 26-24 [B] Issues and Risks...... 26-25 [B][1] Suitability for Purchase...... 26-25 [B][2] Lack of Liquidity...... 26-25 [B][3] Pricing Risks and Valuation Issues ...... 26-25 [B][4] Time Risks...... 26-25 [B][5] Life Expectancy Reports ...... 26-26 [B][6] Premium Optimization ...... 26-26 Proofs [B][7] Mistakes in Servicing Policies...... 26-26 [B][8] Missing Insureds ...... 26-26 [B][9] Possible Insolvency of Insurance Companies...... 26-26 [B][10] Life Insurance Companies’ Aversion to Investment Transactions Involving Life

4th Settlements ...... 26-27 [B][11] Impact of Increase in Cost on Life Insurance Policies ...... 26-27 [B][12] Insurance Companies’ Contestability of Life Insurance Policies ...... 26-27

(Fin. Prod. Fund., Rel. #10, 11/17) lxxiii FINANCIAL PRODUCT FUNDAMENTALS

[B][13] Termination of Policy before Death of Insured...... 26-28 [B][14] Sale Contested By Family Members ...... 26-28 [B][15] Stranger Originated Life Insurance Policies ...... 26-28 [B][16] Refusal to Pay Benefits on Certain Policies...... 26-28 [B][17] Certain Fraudulent Activities...... 26-28 [B][18] Life Settlements Regulation ...... 26-29 § 26:3.5 Life Expectancy Providers...... 26-29 § 26:4 Life Settlement Transaction ...... 26-30 Figure 26-1 Individual Policy Acquisition Flow ...... 26-30 § 26:5 Regulatory Treatment...... 26-30 § 26:5.1 Generally...... 26-30 § 26:5.2 State Insurance Laws ...... 26-34 § 26:5.3 Securities Laws ...... 26-34 [A] Federal Level ...... 26-34 [B] State Level...... 26-39 § 26:6 Litigation Involving Life Settlements ...... 26-41 § 26:6.1 Overview ...... 26-41 § 26:6.2 Significant Cases...... 26-43 [A] Grigsby v. Russell...... 26-43 [B] New England Mutual Life Insurance Co. v.

11/07/17 Caruso...... 26-43 [C] Kramer v. Phoenix Life Insurance Co...... 26-44 [D] PHL Variable Insurance Co. v. Price Dawe 2006 Insurance Trust...... 26-45 [E] Settlement Funding L.L.C. v. Equitable Insurance Co...... 26-46 [F] Berkshire Settlements, Inc. v. Ashkenazi...... 26-48 [G] The Lincoln Life and Annuity Company of New York v. Berck...... 26-49 [H] Ohio National Life Assurance Corporation v. Davis, et al...... 26-52 [I] Pruco Life Insurance Co. v. Brasner...... 26-52 [J] Sciarretta v. The Lincoln National Life Proofs Insurance Company...... 26-53 [K] PHL Variable Insurance Co. v. The Faye Keith Jolly Irrevocable Life Insurance Trust, et al...... 26-54 [L] Principal Life Insurance Co. v. Lawrence Rucker 2007 Insurance Trust...... 26-55 [M] Penn Mutual Life Insurance Co. v.

4th Greatbanc Trust Co...... 26-56 [N] PHL Variable Insurance Co. v. Virginia L. Lankow Life Insurance Trust ...... 26-57 § 26:7 Tax Issues...... 26-57 Appendix 26A Policy Closing Checklist ...... App. 26A-1

lxxiv Table of Contents

Chapter 27 Interval Funds John H. Grady § 27:1 Introduction ...... 27-2 § 27:2 Legal and Regulatory Framework ...... 27-3 § 27:2.1 Important Terms and Definitions...... 27-3 [A] “Registered Investment Company”...... 27-3 [B] “Continuously Offered” ...... 27-3 [C] “Redemption; Repurchase Offer” ...... 27-3 [D] “Interval” ...... 27-3 § 27:2.2 Basic Parameters ...... 27-3 [A] Structure and Governance ...... 27-4 [B] Investment Adviser ...... 27-4 [C] Principal Underwriter ...... 27-5 [D] Independent Auditor; Audit Committee ...... 27-5 [E] Other Service Providers...... 27-5 [F] Liquidity...... 27-6 [G] Compliance...... 27-6 [H] Taxation...... 27-6 § 27:2.3 Other Operating Requirements and Limitations..... 27-7 [A] Repurchase Offers ...... 27-7

11/07/17 [B] Investments in Other Investment Companies ...... 27-7 [C] Leverage ...... 27-7 [D] Derivatives ...... 27-8 [E] Plan of Distribution...... 27-8 [F] Investor Eligibility...... 27-8 [G] Disclosure Documents...... 27-8 [H] SEC Reporting...... 27-9 § 27:3 Organizing and Forming an Interval Fund...... 27-9 § 27:3.1 Required Steps ...... 27-9 § 27:3.2 Timing ...... 27-10 § 27:4 Capital Structure...... 27-10 § 27:4.1 General Rules...... 27-10 § 27:4.2 Voting Rights ...... 27-10 Proofs § 27:5 Portfolio Composition and Management...... 27-10 § 27:5.1 Investment Objective(s), Policies and Strategies...... 27-10 § 27:5.2 Investments in Other Funds...... 27-11 § 27:5.3 Liquidity...... 27-12 4th

Table of Authorities ...... T-1 Index ...... I-1

(Fin. Prod. Fund., Rel. #10, 11/17) lxxv 4th Proofs 11/07/17