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PLI’S COMPLETE LIBRARY OF TREATISE TITLES

ART LAWArt Law: The Guide for Collectors, Investors, Dealers & Artists

BANKING & COMMERCIAL LAWAsset-Based Lending: A Practical Guide to Secured FinancingEquipment Leasing–Leveraged LeasingHillman on Commercial Loan DocumentationHillman on Documenting Secured Transactions: Effective Drafting and LitigationMaritime Law Answer Book

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LITIGATIONAmerican Arbitration: Principles and PracticeClass Actions and Mass Torts Answer BookElectronic Discovery DeskbookEssential Trial Evidence: Brought to Life by Famous Trials, Films, and FictionExpert Witness Answer BookEvidence in Negligence CasesFederal Bail and Detention HandbookHow to Handle an AppealMedical Malpractice: Discovery and TrialProduct Liability Litigation: Current Law, Strategies and Best PracticesSinclair on Federal Civil PracticeTrial Handbook

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Financial ProductFundamentals

Law • Business • Compliance

Second Edition

VOLUME 1

Edited byClifford E. Kirsch

Incorporating Release #10November 2017

#209126

Practising Law InstituteNew York City

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This work is designed to provide practical and usefulinformation on the subject matter covered. However, it issold with the understanding that neither the publisher northe author is engaged in rendering legal, accounting, orother professional services. If legal advice or other expertassistance is required, the services of a competent profes-sional should be sought.

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Copyright © 1999, 2000, 2001, 2002, 2003, 2004, 2005, 2006, 2007, 2008,2009, 2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017 by Practising LawInstitute.

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Printed in the United States of America. No part of this publication may bereproduced, stored in a retrieval system, or transmitted in any form by anymeans, electronic, mechanical, photocopying, recording, or otherwise, withoutthe prior written consent of Practising Law Institute.

LCCN: 99-64003

ISBN: 978-1-4024-1898-3

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For My Wife, Teri—Thank you for being so special.

I love you.

And for My Mom and Dad—With Love and Appreciation.

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About the Editor

Clifford E. Kirsch (editor, author of chapter 5, and co-author ofchapters 6 and 20) is a partner at Eversheds Sutherland in New YorkCity. Previously, he was Vice President and Senior Corporate Counselat the Prudential Insurance Company of America. Prior to that, hewas first vice president and associate general counsel at PaineWebber ’s asset management subsidiary. From 1985 to 1994, he wason the Staff of the U.S. Securities and Exchange Commission,Division of Investment Management, in Washington, D.C. At theSEC, he held several positions, including Assistant Director in theOffice 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 servesas chair for two annual American Law Institute/American BarAssociation Course Offerings: Investment Management Regulationand Investment Adviser Regulation. He also is Chairman of theNASD’s Variable Insurance Products Committee.

Mr. Kirsch has written on various topics relating to investmentcompanies, investment advisers, and the securities activities ofinsurance companies and banks. His publications include: MutualFund Regulation, Third Edition (Practising Law Institute 2011); Broker-Dealer Regulation, Second Edition (Practising Law Institute 2011);Investment Adviser Regulation, Third Edition (Practising Law Institute2011); Variable Annuities & Variable Life Insurance Regulation, SecondEdition (Practising Law Institute 2012); The Financial ServicesRevolution: Understanding the Changing Roles of Banks, MutualFunds and Insurance Companies (Irwin 1996); Regulation andDistribution of Variable Insurance Products (Aspen 1999); andInvestment Management Regulation (Carolina Academic Press1998), a law school casebook.

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About the Contributors

Lee Ann Anderson (Chapter 24) is a finance partner in Ashurst LLP ’sNew York and Washington, D.C. offices. Ms. Anderson’s practicecovers publicly and privately offered structured notes, includingexchange-traded notes, and certificates of deposits for issuers andinvestment banks, including rates-, commodities-, equity-, andpropriety index-linked products. Ms. Anderson has extensive debtand equity capital markets experience in the United States and adviseson the creation of propriety indices. Prior to joining Ashurst,Ms. Anderson was a Special Counsel at Sullivan & Cromwell LLP fornine years, where she similarly advised on structured notes, exchange-traded notes, and proprietary indices. Prior to that, Ms. Anderson wasassociated with Cleary, Gottlieb, Steen & Hamilton LLP for three yearsand Sullivan & Cromwell for over seven years. Ms. Anderson hasextensive experience in securitization and other structured financetransactions, including derivatives and derivative products transac-tions, and structured complex financial products and transactions. Shealso has substantial experience in public and private mergers andacquisitions 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 privatefunds. She is a graduate of Oberlin College (B.A., with highest honors,1975) and received an M.A. from Yale University in 1978. She receiveda 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 FinancialServices Group of Eversheds Sutherland. He concentrates his practicein the corporate and securities area, with an emphasis on exemptarrangements and asset management, including matters under thejurisdiction of the Securities and Exchange Commission (SEC).Mr. Boehm regularly represents national and regional financial serviceorganizations in connection with the establishment and operation oftax-favored savings and retirement arrangements, open- and closed-end investment companies, hedge funds, and insurance companyseparate accounts; compliance with and exemptions from theInvestment Company Act of 1940; and the organization and day-to-day operation of investment advisers and broker-dealers. Mr. Boehmmaintains a leading practice in the college tuition savings area,

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working with states sponsoring “529 plans” and representing financialinstitutions administering those plans. A frequent panelist onprograms 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 hisenforcement experience, he served in the General Counsel’s office andwas a member of the Executive Staff, holding the position of LegalCounsel to the Commissioner from 1982 to 1983.

Mr. Boehm received his B.A., cum laude, from Rutgers College in1975 and his J.D. from Rutgers Law School in 1978 where he washonored as a Phillip J. Levin Scholar.

Gary M. Brown (Chapter 26) is the chief executive officer of CMG LifeServices Inc., which he joined after a thirty-one-year legal career duringwhich his practice centered on advising public companies and theirofficers and directors on corporate governance, securities, and othercompliance issues.

From 1994 until joining CMG in 2011, Mr. Brown taught corporateand securities law at the Vanderbilt University School of Law. He is afrequent instructor at securities programs for the Practising LawInstitute and co-chairs two of PLI’s national securities programs,Understanding the Securities Laws and Securities Filings. While inprivate practice, he was listed in both Best Lawyers in America andChambers—America’s Leading Business Lawyers. During 2002,Mr. Brown served as Special Counsel (Minority) to the United StatesSenate’s Committee on Governmental Affairs (and also worked withthat 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 itsinvestigation, “Wall Street and the Financial Crisis,” and relatedtelevised hearings. While on those assignments, he provided advice onaspects of both the Sarbanes-Oxley Act of 2002 and the Dodd-FrankWall Street Reform and Consumer Protection Act as those pieces oflegislation were being debated in the Senate.

Mr. Brown has been a frequent speaker and author on areasincluding corporate governance, ethics, obligations of corporatedirectors, and the reporting and disclosure obligations of publiccompanies. Mr. Brown is the author of PLI’s treatise, Securities Lawand Practice Deskbook (previously titled Soderquist on the SecuritiesLaws). His other publications include PLI’s Guide to the SEC’sExecutive Compensation and Related Party Transaction Rules (Practis-ing Law Institute 2007); The Implications of the U.S. Sarbanes-OxleyAct (Oxford Press 2004) (presented to an international corporategovernance symposium in Berlin co-sponsored by the Japanese-GermanCenter Berlin and the Max Planck Institute for Foreign Private and

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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 ProdCompanies 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 GottliebSteen & Hamilton LLP. Mr. Brush’s practice focuses on capitalmarkets and corporate transactions. Mr. Brush joined the firm in2010. He received a J.D. degree from Yale Law School in 2009, wherehe was Notes Editor of the Yale Law Journal and Executive Editor ofthe Yale Journal of International Law. He received an undergraduatedegree, summa cum laude, from Dartmouth College in 2006. From2009 to 2010, he served as law clerk to the Honorable Nancy Gertnerof 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 herepresents investment advisers and investment companies in all aspectsof their organization, registration, operation, acquisition, and liquida-tion, and serves as counsel to independent directors of investmentcompanies. He counsels clients in a wide range of regulatory, compli-ance and business matters.

Mr. Cahill has authored numerous publications and articles in theU.S. and international asset management field, and has participated inindustry group panels and educational events. Some of Mr. Cahill’sengagements and experience include: advising investment advisers ona broad range of investment advisory products and services, includingseparately managed accounts, wrap fee programs, and model portfolioprograms; advising mutual fund independent trustees on fundgovernance, conflicts and general fiduciary issues, and director andofficer liability insurance issues; advising financial institutions onprivacy regimes and cybersecurity matters, including working withclients to develop information security programs, data privacy protocols,and related compliance/audit programs; and representing funds, theirboards 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, wherehe was a member of the San Diego Law Review and Order of the Coif.He is a member of the California bar.

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Brenden P. Carroll (Chapter 9) is a senior associate in Dechert LLP ’sFinancial Services Group. Mr. Carroll’s practice focuses on counselinginvestment advisers, open-end and closed-end investment companiesand other financial institutions in regulatory, corporate, and com-pliance matters. During law school, Mr. Carroll served as a law clerk toa 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 amember of the Virginia bar and the District of Columbia bar.

Stephen T. Cohen (Chapter 9) is a partner in Dechert LLP ’s FinancialServices and Investment Management Group. Mr. Cohen’s practicefocuses on the asset management industry. He primarily representsU.S. registered investment companies and their boards of direc-tors with regard to a wide variety of regulatory, compliance, andsecurities law issues. He has extensively counseled clients in connec-tion with registering and reorganizing investment companies. He hasalso assisted clients in obtaining exemptive relief from variousprovisions of the Investment Company Act of 1940. Mr. Cohengraduated from the American University Washington College of Law(J.D.) and the University of Florida (B.A.). He is a member of theMaryland bar and the District of Columbia bar.

Douglas P. Dick (Chapter 9) is a partner in the Financial Services Groupat Dechert LLP in Washington, D.C. His practice includes advisingregistered open- and closed-end investment companies, independentinvestment company trustees, offshore funds and registered investmentadvisers in regulatory, corporate, and business matters. Mr. Dickgraduated from The American University (B.A., cum laude, 1990) andGeorgetown 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 market participants concerningderivatives transactions. Prior to joining Davis Polk, Ms. Ervin servedas a Senior Derivatives Adviser and Attorney Fellow at the U.S.Securities and Exchange Commission, where she helped develop newregulatory approaches to the derivatives markets. Ms. Ervin also servedfor ten years as Deputy Director and Chief Counsel of the Division ofTrading and Markets of the Commodity Futures Trading Commission(CFTC). During that time, she was the principal legal advisor for theagency ’s investment management, broker, and market regulatoryprogram, reviewed new derivative products and developed andinterpreted rules governing money managers and commodity profes-sionals. Ms. Ervin graduated from Mount Holyoke College (B.A.,

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magna cum laude) and Rutgers School of Law (J.D., with HighHonors). From 1991 to 1992, she was an adjunct professor of law atGeorgetown University Law Center, and from 1994 to 1996 a lecturerat George Washington University School of Business and PublicManagement. She is a frequent speaker, commentator, and author onderivatives and investment management issues.

Wendell M. Faria (Chapter 7) is of counsel at Paul Hastings LLP, inWashington, D.C., where he specializes in the law of investmentmanagement, particularly on matters involving the federal securitieslaws. Mr. Faria worked at the Securities and Exchange Commission invarious legal capacities from 1987 to 1994. Before leaving theCommission, he served as the Deputy Chief and the Acting Chief ofthe Office of Insurance Products in the SEC ’s Division of InvestmentManagement. Mr. Faria speaks frequently at conferences on invest-ment management issues, and is an Adjunct Professor of Law at theGeorgetown University Law Center. He received his B.B.A. degree fromthe Bernard M. Baruch College of the City University of New York in1983, 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 Districtof Columbia bar.

Marshall D. Feiring (Chapters 14 & 22) is counsel in the New Yorkoffice of Sidley Austin LLP. His practice focuses on real estate mortgageinvestment conduits, regulated investment companies, and realestate investment trusts. Prior to joining the firm, Mr. Feiring was aSenior Technician Reviewer in the IRS Office of Chief Counsel. Whilewith the IRS, he authored or reviewed private letter rulings andrevenue rulings addressing a broad range of issues concerningmortgage pass-through trusts, REITs, REMICs, partnerships, estatesand financial products. He also authored and reviewed securitization-focused income tax regulations, including the taxable mortgagepool regulations and regulations concerning REMIC residual interests.

Adam E. Fleisher (Chapters 1 & 23) is a partner with Cleary GottliebSteen & Hamilton LLP. Mr. Fleisher is a corporate and securities lawyerwhose 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 bond offerings, rights offerings, block trades and highyield bond offerings; liability management transactions, includingtender offers, exchange offers, consent solicitations and open marketrepurchases; private equity firm structuring and private equity M&A;syndicated lending; and securities and loan trading.

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Mr. Fleisher is a member of the Practical Law Company ’s U.S.Advisory Board and has served as Secretary of the Financial ReportingCommittee of the Association of the Bar of the City of New York. Hehas authored and co-authored a number of publications, including“Selling Shares in a Newly Public Company”; “Communication withFinancial Analysts and Related Disclosure Issues”; “Alternatives toTraditional Securities Offerings”; “Revised Rule 144 and RegistrationRights: Market Practice Two Years On”; “The Mechanics of A/BExchange Offers”; “Regulation S Selling and Transfer Restrictions:A Basic User ’s Guide”; “Recent Cases Address Important Section 16Short-Swing Issues”; “Regulation M: What the Deal Team Needs toKnow”; and “The Deal Team’s Guide to Regulation M.” Mr. Fleisheris a frequent speaker on a variety of legal topics, including at thePractising Law Institute (PLI). He is also recognized as a leadingcapital markets lawyer by The Legal 500 U.S.

Mr. Fleisher joined the firm’s New York office in 2000 and waselected partner in 2008. He was resident in the firm’s London officefrom 2001 to 2005, when he returned to New York. Mr. Fleisherreceived a J.D. degree from Yale Law School and a B.A. from HarvardUniversity. He is a member of the bar in New York.

Professor Tamar Frankel (Chapter 4) received her LL.M. and S.J.D.degrees from Harvard Law School. She teaches at Boston UniversitySchool 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 (formerlyLittle, Brown & Co). Her scholarship and teaching cover the laws oftrust, corporations, banking, insurance, mutual funds, pension funds,securitization, the securities markets, and issues concerning theInternet. Professor Frankel was a Visiting Scholar at the Securitiesand Exchange Commission, Washington, D.C., a Guest Scholar at theBrookings Institution, Washington, D.C., and a visiting professor atthe Harvard Law School, Harvard Business School, and University ofCalifornia Law School at Berkeley. She served as consultant to BankersTrust Company, New York, and as a member of the AdvisoryCommittee, American Law Institute, The Prudent Investor Rule,Restatement of Trusts (Third). She is a Faculty Fellow of the BerkmanCenter for Internet & Society at the Harvard Law School.

Eric C. Freed (Chapter 10) is counsel in the New York office ofEversheds Sutherland. He focuses his practice on federal securitieslaws, particularly the Investment Company Act of 1940 and theInvestment Advisers Act of 1940. He advises mutual fundand investment adviser clients on a wide range of legal, regulatory

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and compliance matters. His prior legal experience includes serving asSenior Counsel, Securities, for a Connecticut financial servicescompany offering variable insurance products and mutual funds. Hewas primarily responsible for the continued registration and compli-ance of the company ’s management investment companies, boththose sold in the retail market and those used as vehicles for theinvestment of variable annuity and variable life insurance assets. Priorto that position, Mr. Freed was a Special Counsel and Senior Attorneyfor the Division of Investment Management of the SEC, where hisresponsibilities included reviewing and preparing no-action letters andrulemaking releases regarding investment companies and investmentadvisers.

John H. Grady (Chapter 27) is a partner in DLA Piper and concentrateshis practice on the investment management industry. He works withinvestment companies (including mutual funds and interval funds),commodity pools, private funds, real estate investment trusts andbusiness development companies, among other pooled vehicles. He alsocounsels investment advisers, broker-dealers, transfer agents andcommodity pool operators on a range of issues, from fund formationto mergers and acquisitions involving these highly regulated firms.

With thirty years of investment management experience, Mr. Gradyhas overseen multiple securities offerings for funds and otherinvestment vehicles, and led or managed the development andoperation of various new investment products and services. He hasaccomplished several fund “adoptions” and reorganizations, and hashandled numerous M&A transactions involving investment advisers,broker-dealers, and investment funds. His experience ranges fromstructuring and negotiating such transactions to handling shareholderand regulatory approvals, as well as associated governance, financial,public relations, and integration issues. Most recently, he was theSenior Vice President and Chief Regulatory Officer of Aretec Corpora-tion, the parent company of Cetera Financial Group, one of thenation’s largest independent financial adviser networks. Mr. Gradyhelped the company form or acquire numerous regulated subsidiariesand affiliates, including multiple investment companies and advisers,as well as several FINRA member firms.

Mr. Grady has served many professional associations during thecourse of his career. Currently, he serves as President of the Alternative& Direct Investment Securities Association, as well as the Chair of itsLegislative and Regulatory Committee. Mr. Grady received his B.A.,magna cum laude, Phi Beta Kappa, from Colgate University, and hisJ.D. from the University of Pennsylvania Law School.

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Robert W. Helm (Chapter 12) is a partner with Dechert LLP, and aleader of the firm’s Financial Services Practice Group. He graduatedfrom Stanford University (A.B., with distinction, 1979), and StanfordLaw School (J.D., 1982). He joined Dechert in 1984, followingtwo years as a researcher at the European University Institute inFlorence, Italy. He was a Fulbright-Hays Direct Exchange Fellow toItaly in 1982–1983. In 1990, he spent several months as a visitinglawyer with a Luxembourg law firm.

Mr. Helm represents investment companies, investment advisers,insurance companies, broker-dealers, and other institutions inregulatory and general corporate matters. He has acted as a consultantto foreign governments and regulatory agencies on issues relating tosecurities and investment management markets and their regulation.

Mr. Helm has lectured on securities law topics in the United Statesand Europe. His publications include “Self-Directed Employee BenefitPlans and Private Investment Companies: Unraveling PanAgora”(The Investment Lawyer, Mar. 1995); “The U.S. Market for U.K.Investment Trust Companies” (Journal of International Banking Law,Oct. 1995); and “Offshore Investment Funds” (Financial Services2000, Dow Jones Irwin, 1996). He is a member of securities andcommodities law committees of the American Bar Association, theDistrict of Columbia Bar Association, the International Bar Associa-tion. He is also a member of the State Bar of California, the New YorkState 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 aJ.D. degree from the University of Pennsylvania Law School in 2006,a master ’s degree from the Massachusetts Institute of Technologyin 1999, and an undergraduate degree, Tau Beta Pi, from theMassachusetts Institute of Technology in 1998. Mr. Hur is a memberof the Bar of New York. He is fluent in Korean.

Dodie Kent (Chapter 20) is a partner in the New York office ofEversheds Sutherland. With more than twenty years of experience ascorporate counsel in the financial services industry, Ms. Kent adviseson product design, marketing, and administrative issues as they relateto variable and fixed life insurance and annuity products. She also hasparticular experience counseling on related regulatory compliance andenforcement issues. Ms. Kent focuses on many novel and complexinsurer initiatives, including the de-risking of legacy product offerings;the design and regulation of index-linked investments; issues related tothe use of volatility management; and the simplification of variable

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

Laurin Blumenthal Kleiman (Chapter 8) is a partner in the New Yorkoffice of Sidley Austin LLP. Ms. Kleiman is experienced in variousaspects of investment company representation, including creation andregistration of open-end and closed-end funds and unit investmenttrusts, offshore funds, compliance matters and mutual fund mergers,acquisitions, and reorganizations. She also has advised both foreignand domestic investment advisers in connection with federal and stateinvestment adviser regulation. Ms. Kleiman received her B.A. fromVanderbilt University in 1980 and her J.D. from the VanderbiltUniversity School of Law in 1983.

Michael B. Koffler (Chapter 18) is a partner at Eversheds Sutherlandwhere he regularly counsels clients on multi-tiered investmentproducts, including 529 Plans, variable annuities, variable lifeinsurance, separate accounts and mutual funds. In his practice,Mr. Koffler counsels clients on how to comply with the SecuritiesExchange Act of 1934, NASD Rules, MSRB Rules, the InvestmentAdvisers Act of 1940, and state blue sky laws and regulations. Hefrequently advises broker-dealers, investment advisers, insurancecompanies, banks and state instrumentalities on the distribution of529 Plans, which typically involves providing advice regarding distribu-tion channels, money flow issues, account opening and transactionapproval obligations, sales practices, advertising, financial, operationaland reporting requirements, sales contests, registration, compensation,books and records, supervision, continuing education and training.

Mr. Koffler has written multiple articles on 529 Plans and hasspoken at industry conferences, including a regional summit on 529Plans sponsored by the MSRB, regarding compliance with thesecurities laws governing these investment products.

Prior to joining Eversheds Sutherland, Mr. Koffler spent two yearson the staff of the SEC in the Division of Investment Management,where he reviewed registration statements, proxy filings, exemptiveapplications and requests for no-action relief regarding variableinsurance products.


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Mr. Koffler earned his J.D. from the University of Pennsylvaniaand his B.S., summa cum laude, from the State University of New Yorkat Binghamton.

Robert M. Kreitman (Chapter 22) is a tax partner in the New Yorkoffice of Sidley Austin LLP, where he has focused on the structuredfinance, securitization, financial products, and credit derivative areassince 1987. Mr. Kreitman’s principal areas of experience includeresidential and commercial mortgage-backed securitization, asset-backed securitization and structured finance, including the structuringof debt repackagings, insurance-linked securities, distressed asset funds,credit-default swaps, and synthetic securitizations. Mr. Kreitmanrepresents a wide variety of clients, including JP Morgan Chase,Deutsche Bank, Citigroup, Bank of America, Goldman Sachs, MorganStanley, Credit Suisse, GECC, Aon, Mass Mutual, USAA, Swiss Re,Chrysler, GMAC, and Ford. He also represents numerous non-U.S.financial institutions, including Norinchukin Bank, RBS, NationalAustralia Bank, HSBC, Natixis, and Barclays Bank plc.

Mr. Kreitman is a co-author of the Little, Brown and Companybook on mortgage-backed securities. He was also the special taxcounsel to the Resolution Trust Company (RTC) on over $100 billionof MBS securitization transactions in the early 1990s. More recently,he served as the senior U.S. tax advisor to (i) Bank of America andWashington Mutual on their respective covered bond programs, (ii) thelead managers on the HBOS Treasury Services plc UK covered bondoffering (IFLR 2004 Securitization Deal of the Year), (iii) Banc OneCapital Markets on the GMACM Home Equity Loan Trust 2002-HE3transaction (ASR and IDD 2002 Deal of the Year in the “MostInnovative Structure” category), and (iv) Ford Credit on the $5 BillionFord Credit Floorplan Master Owner Trust A, Series 2001-1 and2001-2 (IDD 2001 Deal of the Year). Mr. Kreitman received his B.A.from Yeshiva University, his J.D. from Georgetown University LawCenter, and his LL.M. in Taxation from New York University Schoolof Law.

Joyce E. Larson (Chapter 8) is a Compliance Project Specialist in theNew York office of Sidley Austin LLP. Ms. Larson received an M.B.A. inFinance from the New York University Stern School of Business, anM.P.A. in National Security Studies from New York University, and aB.A. in History from the University of Washington.

Scott J. Lederman (Chapter 11) is the Managing Director atGrosvenor Capital Management, L.P., a firm specializing in creatingand managing investment programs utilizing alternative investmentstrategies for marketable securities. Prior to joining Grosvenor in 1998,

FINANCIAL PRODUCT FUNDAMENTALS

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Mr. Lederman was, over five years, successively the General Counseland Chief Operating Officer of S.A.C. Capital Advisors, LLC, amulti-strategy hedge fund 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 CoffieldUngaretti & 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. inFinance and a B.S., magna cum laude, in Economics from TheWharton School of the University of Pennsylvania in 1979 and 1978,respectively. Mr. Lederman is a member of the Illinois and New Yorkbars.

Jack W. Murphy (Chapter 9) is a partner of Dechert LLP and joined thefirm in 1997 directly from the Securities and Exchange Commission,where he had served as Associate Director and Chief Counsel of theDivision of Investment Management since 1994. In this role, hesupervised the office primarily responsible for interpreting andestablishing the Division’s positions under the Investment CompanyAct of 1940, and the Investment Advisers Act of 1940, as well as theSecurities Act of 1933 and the Securities Exchange Act of 1934 asthose statutes apply to investment companies. Mr. Murphy began hiscareer with the Division of Investment Management in 1985. He leftthe SEC in 1988 for private practice in New York, after which heserved for a three-year period beginning in 1991 as Associate GeneralCounsel of PaineWebber/Mitchell Hutchins Asset Management Inc.Mr. Murphy is a graduate of the State University of New York atAlbany (B.A., 1980) and Boston College Law School (J.D., 1983).

James A. Overdahl (Chapter 19) is a partner in the Delta StrategyGroup and formerly was a Vice President in NERA’s Securities andFinance Practice in Washington, D.C. Prior to joining NERA, he wasChief Economist and Director of the Office of Economic Analysisfor the U.S. Securities and Exchange Commission (SEC). He servedas principal economic advisor on policy, rulemaking, and litigationsupport, and supervised the SEC ’s economics program. From 2002 to2007, Dr. Overdahl served as Chief Economist and Director of theOffice of the Chief Economist for the U.S. Commodity Futures TradingCommission (CFTC). He has testified before Congress on behalf of theSEC and CFTC, and provided staff support and briefings for membersof the President’s Working Group on Financial Markets. He haspublished extensively in leading economics and finance journals andhas co-edited and co-authored, with Robert Kolb, four books inmultiple editions, including Financial Derivatives: Pricing and RiskManagement and Futures, Options, and Swaps. He graduated from St.


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

Harry S. Pangas (Chapter 2) is a partner at Eversheds Sutherland.Mr. Pangas regularly advises operating and investment companies on allaspects of the rules and regulations of the Securities and ExchangeCommission, 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. Healso has represented clients in connection with a variety of corporatetransactional matters, including public and private equity and debtofferings, mergers, acquisitions and dispositions, and other strategictransactions.

In particular, Mr. Pangas has developed a niche practice representingclosed-end investment companies that have elected to be regulated asbusiness development companies under the Investment CompanyAct. His practice also includes representing special purpose acqusitioncompanies and other public vehicles for private equity investing.

Mr. Pangas worked in the Division of Corporation Finance at theSecurities and Exchange Commission in Washington, D.C., and wasa member of the Division of Corporation Finance’s ShareholderProposal Task Force.

Amanda N. Persaud (Chapter 15) is a partner in Ropes & Gray ’sprivate investment funds practice in New York. Her practice focuseson the formation, fundraising, and operation of U.S. and internationalprivate investment funds, including private equity funds, hedgefunds, funds-of-funds, and other alternative asset classes such as realestate, special situations, mezzanine/distressed debt, and hybrid funds.

Ms. Persaud has led numerous fund raises for prominent U.S. andinternational sponsors of private investment funds. She regularlyadvises on a wide range of governance, operational, and regulatorymatters affecting sponsor clients. She has significant experience advis-ing sponsor clients in structuring and reorganizing private invest-ment funds, as well as assisting them with internal compensation andmanagement arrangements. Ms. Persaud has negotiated and structuredspin-outs of, strategic investments in, and sales of, alternative assetmanagement businesses and regularly provides fund-related advice withrespect to portfolio acquisitions and dispositions.

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

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Daniel A. Rabinowitz (Chapter 25) is a partner with Kramer LevinNaftalis & Frankel LLP. Mr. Rabinowitz’s practice focuses ontransactional and regulatory advice in the insurance industry. Hisexperience spans all types of transactional activity and regulatorymatters affecting the insurance business, including mergers andacquisitions, capital markets, restructurings, securitization and struc-tured finance, reorganizations, reinsurance, corporate governance, andall aspects of NAIC and state regulatory oversight. He has extensiveexperience in mergers, acquisitions, divestitures and strategic invest-ments, including through the use of reinsurance; structured transac-tions and insurance-linked securities, such as catastrophe andmortality-index bonds, closed block securitizations and triple-Xfinancings; representing clients with matters before state insuranceregulators and providing regulatory advice in transactional contexts,including Form A, Form D, Form E, disclaimer of control, bulkreinsurance, and similar filings and approvals; public and privateofferings of securities; reinsurance and alternative risk transfer;advising clients on insurance company distress and receivershipsituations; reorganizations such as demutualizations and Blue Crossconversions; and the intersection between insurance and relatedregulatory regimes, particularly in the context of diversified holdingcompany structures. Mr. Rabinowitz has been recognized in the areaof “Insurance: non-contentious” by the 2011 Legal 500 U.S.

Peter M. Rosenblum (Chapter 21) is a partner in the Boston office ofFoley Hoag LLP, where he counsels a broad range of clients in diverseindustries concerning business and regulatory matters, financingstrategies and structuring of corporate transactions. He is activelyinvolved 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 venture capital. Prior toentering the private practice of law, Mr. Rosenblum served as LawClerk to Chief Justice G. Joseph Tauro of the Massachusetts SupremeJudicial Court. He graduated from Amherst College and Harvard LawSchool.

Alexandre V. Rourk (Chapter 16) is an associate in the InvestmentManagement Group of Seward & Kissel LLP. He received a B.A., magnacum laude, from Duke University, and graduated from Washingtonand Lee University School of Law, where he was a Lead ArticlesEditor 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 mattersand securities and capital market transactions, including structured

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

Bart Sheehan (Chapter 14) is a partner in the New York office of SidleyAustin LLP. Mr. Sheehan focuses on the representation of issuers andunderwriters of publicly and privately offered debt and equitysecurities, with an emphasis on companies in the energy and realestate industries, particularly real estate investment trusts. In additionto securities offerings, his practice includes consultation with clientsregarding corporate governance matters and public company reportingobligations. Mr. Sheehan is also active in representing pooledinvestment entities, such as hedge funds and private equity partner-ships and their sponsors.

Stuart M. Strauss (Chapter 17) is a partner in the New York officeof Dechert LLP. Mr. Strauss advises investment companies andtheir independent directors, banks, and other financial institutionson matters pertaining to U.S. securities laws, particularly theInvestment Company Act of 1940 and the Investment Advisers Actof 1940. Mr. Strauss has more than twenty-five years of corporate andsecurities legal experience, including three years as an attorney withthe Securities and Exchange Commission. He devotes his practice tothe representation of investment companies, independent directors ofinvestment companies, banks, and other financial institutions. Inaddition, he is the author of “A Practical Guide to the InvestmentCompany 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 lawmatters. He graduated from the University of Pennsylvania’s WhartonSchool 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.

Bibb L. Strench (Chapters 6 & 16) is a partner in the CorporateTransactions & Securities practice group of Thompson Hine LLP. Hefocuses on exchange-traded funds (ETFs), closed-end funds, mutual

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funds and investment advisers. Mr. Strench provides advice onregulatory, compliance, entity formation, auditor independence, corpo-rate governance and other issues related to the operation of theaforementioned businesses. He has experience with unique fundstructures including funds with alternative investment strategies,faith-based restrictions and multi-tier levels. Mr. Strench began hiscareer as a staff attorney in the Division of Investment Managementof the U.S. Securities and Exchange Commission, where he wasprincipally responsible for granting exemptive orders and respondingto no-action and interpretive requests under the Investment Com-pany Act of 1940 and Investment Advisers Act of 1940. Mr. Strench isadmitted to practice in the District of Columbia, Texas, andWashington. He received a B.A., magna cum laude, from VanderbiltUniversity, 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 practicefocuses on corporate and financial transactions. Ms. Tabb joined thefirm in 2009. She received a J.D. degree, Order of the Coif, fromStanford Law School, where she also was named the Nathan AbbottScholar for graduating first in her law school class. Ms. Tabb alsoreceived a master ’s degree in Economics, with distinction, fromUniversity College London in 2006, and received an undergraduatedegree, with honors and distinction, from Stanford University, whereshe was a member of Phi Beta Kappa. Ms. Tabb is a member of the Barin New York.

Adam T. Teufel (Chapter 17) is a partner with Dechert LLP, wherehe regularly advises registered funds (including mutual funds,exchange-traded funds, and closed-end funds), their investmentadvisers, and their boards of directors on a wide range of corporatematters, such as the development and launch of new funds, regulatorycompliance matters for existing funds, fund governance issues, andfund/adviser reorganizations and acquisitions. He routinely representsfunds and advisers before the SEC in response to inquiries andexaminations. Mr. Teufel has significant experience with exchange-traded funds (ETFs) and their advisers, including obtaining SECexemptive relief, the launch of novel ETF products and advising on awide range of operational and compliance issues unique to index andactively managed ETFs.

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

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licensing, sales practice, advertising and suitability matters. Mr. Teufelalso assists broker-dealers in connection with SEC and FINRAinspections and examinations.

Mr. Teufel graduated from Emory University, B.B.A., and theCatholic University of America, Columbus School of Law, J.D., cumlaude, where he earned the Securities Law Program concentrationcertificate, participated with the Summer Honors Program internshipwith 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 practicefocuses on corporate and financial transactions. Ms. Troy joined thefirm in 2012. She received a J.D. degree, cum laude, from FordhamUniversity School of Law, where she served as an Editor of the Journalof Corporate and Financial Law and received the Archibald R. MurrayPublic Service award for her work in Securities Arbitration. She receivedan undergraduate degree, cum laude, from New York University.Ms. Troy is a member of the Bar in New York. Her native languageis English. She is fluent in Romanian and proficient in French.

Walter Van Dorn (Chapter 3) is a partner in the New York office ofBaker & Hostetler LLP and leader of the firm’s Intellectual Securitiesand Capital Markets team. He advises issuers, underwriters andfinancial institutions on international capital market transactionssuch as SEC-registered public offerings of both equity and debtsecurities, securities offerings under Rule 144A and Regulation S, thecreation and maintenance of ADR and GDR programs, and generalcorporate 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 SpecialCounsel in the Office of International Corporate Finance at the SECin Washington, D.C. At the SEC, Mr. Van Dorn was responsible forU.S. offerings of equity securities and ADRs by non-U.S. issuers andofferings of debt securities by both corporations and governments,as well as mergers and acquisitions involving non-U.S. issuers. Healso participated in rule-making initiatives amending Regulation Sand requiring public disclosure of securities sold under Regulation S.

Mr. Van Dorn received an A.B. in 1984 from the University ofMichigan and a J.D., cum laude, in 1987 from the Boston UniversitySchool 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.

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George H. White III (Chapter 24) is a partner at Sullivan & CromwellLLP. Mr. White’s practice focuses on international capital markets,corporate finance, and mergers and acquisition transactions andcorporate restructurings. He is active in the Firm’s Corporate Financeand High-Yield Debt Group.

Mr. White regularly advises Barclays plc, Barclays Bank plc, andBarclays Capital on a variety of matters including its liability manage-ment program, regulatory capital issuances, the sale of the BarclaysGlobal Investors asset management business, the capital investment inBarclays by several strategic investors, and various regulatory matters.He also represented Barclays on its proposed acquisition of ABN AMROHolding NV in 2007. He has been instrumental in helping Barclaysto develop its retail structured financial products business in theUnited States.

Mr. White has represented Anheuser-Busch InBev SA/NV and itspredecessor companies for over fifteen years. Since the beginning of2009, Mr. White has represented AB InBev on more than $82 billion ofdebt financings and re-financings, on its NYSE listing and SECregistration, and on its $120 billion Agreement in Principle withSABMiller to combine the two companies. Mr. White has alsorepresented AB InBev on several debt exchange offers, reorganizations,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 TaipeiExchange. Mr. White continues to advise AB InBev on the U.S. SECregistration and New York Stock Exchange listing of the new Belgiumcompany set up in connection with the take-over of SABMiller by ABInBev. In 2008, he advised AB InBev on its acquisition of Anheuser-Busch to create the world’s largest brewer and on its related equity anddebt financings, including AB InBev’s €6.36 billion rights offering andAnheuser-Busch InBev SA/NV (Belgium), as guarantor, and itssubsidiary Anheuser-Busch InBev Finance Inc. (United States), asissuer, in the issuance of US$46 billion aggregate principal amount ofguaranteed notes. He has regularly represented AB InBev ’s predecessorcompanies, including advising Interbrew of Belgium on its combina-tion with AmBev of Brazil in 2004, on the buy-out of minorityinterests in its Russian and Ukraine subsidiary in 2005, and itsacquisition of Brauerei Beck in 2002.

Mr. White recently advised Coca-Cola Hellenic Bottling Company,the largest public company in Greece by market capitalization, on itsre-listing on the London Stock Exchange under a new Swiss holdingcompany and on the related exchange offers and financing arrange-ments. He had previously worked with Coca-Cola Hellenic on its New

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York Stock Exchange listing, SEC registered debt offerings, and avariety of corporate matters.

In the area of high-yield finance, Mr. White has represented theunderwriters for Jaguar Land Rover Automotive pie on several debtissues and debt tenders. He also represented Rhone Capital in relationto the financing of the Evonik Carbon Black acquisition.

Mr. White advised AT&T (then SBC Communications), the leadingstrategic investor in Telkom SA, the largest telecommunicationscompany in South Africa, in connection with the SEC registrationand initial public offering of Telkom, as well as the subsequentdisposition of this investment through a secondary offering and a saleto a strategic investor. Mr. White also advised AT&T in the sale of its41% interest in TDC A/S of Denmark. He represented the controllingshareholder of Equant in connection with the acquisition of Equant byFrance Telecom in 2001.

In the field of international capital markets, in addition to his workfor 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 publicoffering and spin-off of Infineon in 2001. In 2000, he representedInterbrew (Belgium) on its initial public offering. He also advisedAllianz (Germany) in connection with its New York Stock Exchangelisting. His experience advising issuers in connection with initialpublic offerings also includes representing Adidas (Germany) and ASMLithography (Netherlands) in their highly successful flotations in theUnited States and Europe. He represented the controlling shareholderof Equant (Netherlands) in Equant’s initial public offering in 1998 andits 1999 follow-on secondary offerings. Between 1996 and 1999, headvised the global coordinators on the various tranches of theDeutsche Telekom privatization, and he also represented the managersin 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 MarketsForum of the International Bar Association and the ConsultativeAdvisory Group to the International Auditing and AssuranceStandards Board. Mr. White speaks at a variety of trade associationsand in professional and educational forums on topics includingcorporate governance and regulation of capital markets.

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

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Commodity Futures Trading Commission (CFTC) between 2002 and2005, providing advice on a wide range of regulatory and legal mattersrelating to the application of the Commodity Exchange Act to thefutures and derivatives industry and to energy derivatives trading. Healso served in the same capacity for Chairman Wendy Gramm, and asAssistant General Counsel where he was principally engaged inappellate litigation for the agency. He has spent considerable time oncompetition issues, having worked earlier in his career at the FederalTrade Commission, where he was involved in matters involvingantitrust, competition, and market regulatory issues. Mr. Zwirb haswritten on legal, financial regulatory, and antitrust topics for lawjournals such as Regulation, Legal Times, Futures & Derivatives LawReport and the Energy Metro Desk, and has also served as a paneldiscussant for the ABA Committee on Regulation of Futures andDerivative Instruments. He is also a co-author of a major treatise oncommodity pool regulation and a chapter on energy regulation bythe Federal Energy Regulatory Commission and the CFTC in Energyand Environmental Trading: U.S. Law and Taxation.

Mr. Zwirb received his undergraduate B.A. degree, summa cumlaude, from the University of California at Riverside, and his J.D.from the University of California at Los Angeles. He is a member ofthe bars of California and the District of Columbia.

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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 Securitiesand Structured Financing)

Chapter 5 Introduction to Collective InvestmentVehicles

Chapter 6 Mutual Funds

Chapter 7 Closed-End Investment Companies

Chapter 8 Unit Investment Trusts

Chapter 9 Money Market 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

Chapter 15 Private Equity Funds and Advisers: StructuralFeatures; Tax and Regulatory Considerations;and Other Issues, Trends, and FutureChallenges

Chapter 16 An Overview of the Formation and Operationof 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 TheirRegulation

Chapter 20 An Introduction to Variable InsuranceProducts

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 SecuritiesOfferings

Chapter 24 Exchange-Traded Notes and SimilarStructured Notes

Chapter 25 Insurance-Linked Securities

Chapter 26 Introduction to Life Settlements

Chapter 27 Interval Funds

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Table of Contents

VOLUME 1

About the Editor ..............................................................................ix

About the Contributors..................................................................xi

Table of Chapters........................................................................ xxxi

Chapter 1 The Registered OfferingAdam E. Fleisher, Rebecca Tabb & Andra Troy

§ 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§ 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§ 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........................................................................ 1-27Figure 1-2 Timeline ............................................................... 1-28

§ 1:14.1 Pre-Filing: Drafting the Registration Statementand 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§ 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§ 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 FinancingOptions Post-IPO .......................................................... 1-39

§ 1:17 Conclusion .................................................................... 1-41


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Chapter 2 Limited Offerings and Private PlacementsHarry 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§ 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

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§ 2:13 State Blue Sky Requirements......................................... 2-40

Appendix 2A Limited Offering and Private PlacementQuick Reference Chart................................ App. 2A-1

(Fin. Prod. Fund., Rel. #10, 11/17)

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Chapter 3 International Securities OfferingsWalter 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; SomeU.S. Issuers (Category 1) ....................................... 3-22

[B] Debt Offerings by Reporting U.S. and Non-U.S.Issuers and Non-Reporting Non-U.S. Issuers withSUSMI; 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§ 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

§ 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-GAAPFinancial 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 Loans to Executives ............................................... 3-46§ 3:8.9 Trading During Pension Fund 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§ 3:12.4 Exchange Act Registration Thresholds .................. 3-56

Appendix 3A Form F-1: Registration Statement Underthe Securities Act of 1933........................... App. 3A-1

Chapter 4 Securitization (Asset-Backed Securitiesand 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§ 4:3 Highlights of Securitization............................................. 4-8

§ 4:3.1 Securitization As a Converter; from IlliquidLoans to Liquid Securities; from Institutionsto Markets; from Traditional Systems to aNew System............................................................. 4-8

[A] Main Feature of Securitization................................. 4-8[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


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§ 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 Creationof Securities ........................................................... 4-14

[A] Flexibility in Allocating Risk Among VariousClasses of Securities............................................... 4-15

[B] Flexibility in Designing the Risk Level of SPVSecurities: Diversification and CreditEnhancement ......................................................... 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.................................... 4-32Graph 4-2 Channels of Intermediation ................................. 4-33Graph 4-3 Traditional Role of Banks ..................................... 4-33

Chapter 5 Introduction to Collective Investment VehiclesClifford E. Kirsch

§ 5:1 Background...................................................................... 5-1§ 5:2 Regulatory Structure........................................................ 5-2Chart 5-1 Private Money Managers vs. Mutual Funds ............ 5-3

§ 5:2.1 The Retail Marketplace............................................ 5-3Chart 5-2 Retail Investment Vehicles ...................................... 5-4

§ 5:2.2 The Private Marketplace .......................................... 5-5§ 5:2.3 The Offshore Marketplace ....................................... 5-5

Chart 5-3 Collective Investment Vehicles................................ 5-6

Chapter 6 Mutual FundsClifford E. Kirsch & Bibb L. Strench

§ 6:1 A Brief History of the Mutual Fund Industry ................. 6-2§ 6:2 The Players ................................................................... 6-11

§ 6:2.1 Mutual Funds ........................................................ 6-12§ 6:2.2 Investment Adviser ................................................ 6-13§ 6:2.3 Board of Directors.................................................. 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/PrincipalUnderwriter/Broker-Dealer/Investors..................... 6-18

Figure 6-4 Distribution Structure 2: Fund/PrincipalUnderwriter/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 ........ 6-19Figure 6-7 Manager of Managers Structure............................ 6-20

§ 6:3.5 Marketing Structures ............................................. 6-20Figure 6-8 Master-Feeder Structure ........................................ 6-20Figure 6-9 Multi-Class Structure ........................................... 6-21Figure 6-10 Fund of Funds 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[E] Affiliated Transactions ........................................... 6-25[F] Restrictions on Investments .................................. 6-26

§ 6:4.3 Restrictions on Capital Structure........................... 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[A] Limits on Sales Load.............................................. 6-28[B] Financing Distribution Through Fund Assets ....... 6-28[C] Advertising Regulations ......................................... 6-28


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§ 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 CompaniesWendell 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-EndCompany....................................................................... 7-11

§ 7:5 Regulation of the Offer and Sale of Closed-EndCompany Shares ........................................................... 7-13

§ 7:6 Financing Distribution Costs of Closed-EndCompanies .................................................................... 7-16

§ 7:7 Registration Procedures for Closed-EndCompanies .................................................................... 7-17

§ 7:8 Periodic Reporting Under the Investment CompanyAct................................................................................. 7-17

§ 7:9 Regulation of Share Repurchases by Closed-EndCompanies .................................................................... 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[B] Rule 23c-2.............................................................. 7-21[C] Rule 23c-3.............................................................. 7-21

§ 7:10 Regulation of the Operations of the Closed-EndCompany....................................................................... 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

Appendix 7A Form N-2: Registration Statement forClosed-End Management InvestmentCompanies.................................................. App. 7A-1


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Chapter 8 Unit Investment TrustsLaurin 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

§ 8:6.1 Registration Under the Securities Act andthe 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§ 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[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


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[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 ofSecurities” ..................................................................... 8-29

§ 8:9 Innovative Uses of the UIT .......................................... 8-33§ 8:9.1 Asset Allocation Vehicles ....................................... 8-33§ 8:9.2 Exchange Traded UITs ........................................... 8-35

§ 8:10 Conclusion .................................................................... 8-40

Appendix 8A Differences Between UITs andMutual Funds ............................................. App. 8A-1

Chapter 9 Money Market FundsJack W. Murphy, Douglas P. Dick, Stephen T. Cohen &Brenden P. Carroll

§ 9:1 Introduction .................................................................... 9-3§ 9:2 What Is a Money Market Fund? ..................................... 9-5§ 9:3 Rule 2a-7 ......................................................................... 9-9

§ 9:3.1 Exemption from Standard ValuationProcedures and Types of Money Market FundsUnder Rule 2a-7 ...................................................... 9-9

[A] Exemption Under Rule 2a-7 for Governmentand 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 MandatoryRedemptions .......................................................... 9-16

[F] Tax and Accounting Implications of theFloating 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§ 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 orRetail Money Market Funds Using theAmortized 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 thePenny-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[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[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[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


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[C][2] Demand Feature and GuaranteeDiversification ................................................... 9-56

[C][2][a] Diversification Requirements forDemand Features and Guarantees .................. 9-56

[C][2][b] Guidelines for Calculating DemandFeature 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/Know

Your Customer 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

§ 9:3.7 Disclosure of Portfolio Information andOther 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§ 9:9 Conclusion .................................................................... 9-93

Chapter 10 Wrap Fee ProgramsEric C. Freed

§ 10:1 Background.................................................................... 10-1§ 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 FundsScott 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 Accredited

Investor Standard............................................. 11-10[B][2] Proposed Amendments: “Accredited

Natural Person”................................................. 11-12[B][3] Proposed Amendments: Alternative

“Investments-Owned” Standard andExemption for “Large AccreditedInvestors”......................................................... 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§ 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[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] Family Office................................................. 11-92[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 Commodity Pool Operator................................. 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[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[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 aCommodity Trading Adviser.............................. 11-110

[C][1] Section 4.14(a)(4) and (a)(5) CPOExemptions .................................................... 11-110

[C][2] Section 4.14(a)(8) Registered InvestmentAdviser Exemption......................................... 11-110

[C][3] Section 4.14(a)(10) Private CTAExemption ..................................................... 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[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 CertainNonbank Financial Companies ......................... 11-144

[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 (DuallyRegistered with the SEC or Solely Registeredwith 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


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§ 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[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 ofInterest 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

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

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


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Chapter 12 International Investment FundsRobert W. Helm & Kevin F. Cahill

§ 12:1 Introduction .................................................................. 12-5§ 12:2 Offshore Funds.............................................................. 12-6

§ 12:2.1 Offshore Fund 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 IntegratingOffshore 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[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§ 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[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


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[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 andReporting 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[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

[E] Exemptions from CFTC Registration As aCTA: 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 IssuesAffecting Non-U.S. Funds Engaged inthe OTC Derivatives Markets withU.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


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[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 Swapsand Uncleared Security-Based Swaps with aCounterparty Subject to PrudentialRegulator 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 ConsiderationsAffecting Offshore Funds............................................. 12-78

§ 12:4.1 U.S. Tax Law Issues Relating to the Marketingof Shares of Non-U.S. Funds in the U.S.............. 12-78

[A] U.S. Taxation of Non-U.S. Fund Treated As aCorporation for U.S. Tax Purposes ...................... 12-78

[B] U.S. Taxation of U.S. Shareholders ofNon-U.S. Fund .................................................... 12-80

[C] U.S. Taxation of Non-U.S. Fund Treated As aPartnership for U.S. Tax Purposes ....................... 12-82

§ 12:4.2 U.S. Tax Law Issues Relating to the Creationand Offering by U.S. Firms of Non-U.S.Investment Funds ................................................ 12-82

[A] Services Provided Through a U.S. Entity............. 12-82[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§ 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


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§ 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 CompanyShares 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

§ 12:8.2 Markets in Financial Instruments Directive...... 12-106§ 12:8.3 Directive on Alternative Investment Fund

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 OffshoreInvestment Products ................................. App. 12A-1

Chapter 13 Commodity PoolsSusan C. Ervin

§ 13:1 Introduction .................................................................. 13-2§ 13:2 Background: Futures and Swaps Regulation in the

United States................................................................. 13-3§ 13:2.1 Definitions: Commodities, Derivatives,

Swaps, and Futures ................................................ 13-4


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§ 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[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........................................ 13-22Chart 13-2 U.S. Commodity Pool Regulation:

When It Applies ................................................ 13-23§ 13:5.1 Non-U.S. Fund Manager; Non-U.S.

Participants; Not Organized or Operated in theU.S.—Not Subject to Pool Regulation ................. 13-24

§ 13:5.2 Offshore Fund Manager Marketing OffshoreFund to U.S. and Non-U.S. Participants—FullCommodity Pool Regulation Subject to“Foreign Futures” Exemption............................... 13-24

§ 13:5.3 U.S. Fund Manager Offering OffshoreFund Only to Non-United StatesPersons—Partial Regulation ................................. 13-26


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§ 13:5.4 U.S. Fund Manager Operating Fund withU.S. Participants—Full U.S. CommodityPool Regulation .................................................... 13-28

§ 13:6 Conclusion .................................................................. 13-28

Chapter 14 Real Estate Investment TrustsBart 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 theSecurities Act of Certain Real EstateCompanies........................................................... 14-11

[B] SEC Release No. 33-6900 .................................... 14-11[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[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

Quarterly Asset Tests to Certain REITAffiliates............................................................... 14-25

§ 14:8.7 Failure to Meet Other REIT Requirements.......... 14-26


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§ 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 Dividends 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 StatementUnder the Securities Act for CertainReal Estate Companies ............................. App. 14A-1


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VOLUME 2

Table of Chapters...........................................................................vii

Chapter 15 Private Equity Funds and Advisers:Structural Features; Tax and RegulatoryConsiderations; and Other Issues, Trends,and Future ChallengesAmanda 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 andLiability Issues) ........................................................... 15-10

§ 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] Cash.............................................................. 15-17[A][6][b] Property......................................................... 15-17[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[B] Other Non-Tax Advantages of the

Partnership Form ................................................. 15-20[B][1] Limited Liability .............................................. 15-20

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§ 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

§ 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

§ 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§ 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

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Chapter 16 An Overview of the Formation andOperation 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§ 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[B] ETNs.................................................................... 16-13

§ 16:8.4 Calculation of Net Asset Value ............................ 16-13[A] ETFs..................................................................... 16-13[B] ETVs .................................................................... 16-14[C] ETNs.................................................................... 16-14

§ 16:8.5 Fees ...................................................................... 16-15[A] ETFs..................................................................... 16-15[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

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Chapter 17 Exchange-Traded FundsStuart 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 Arbitrage 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§ 17:3.1 Registration As an Open-End Company or

a Unit Investment Trust ........................................ 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§ 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

[A] Generic Listing Standards.................................... 17-18[B] 19b-4 Process ....................................................... 17-18

§ 17:5 New Products and Recent Developments ................... 17-18

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§ 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 PlansSteven B. Boehm & Michael B. Koffler

§ 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 ............................................. 18-6Figure 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 ............................................... 18-11Figure 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§ 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 ContinuingEducation: Rule G-3 ............................................ 18-17

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§ 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

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[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

Business Under Rule G-37 Arising Duringa Pre-Existing Engagement Relating toMunicipal Fund Securities ............................... 18-51

[E] Indirect Violations ............................................... 18-52[F] Exemptions .......................................................... 18-53


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§ 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 andTheir RegulationJames 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[C] Options .................................................................. 19-9[C][1] Generally ........................................................... 19-9[C][2] Over the Counter Options............................... 19-11[C][3] OTC Interest Rate 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§ 19:4.2 Lowering Funding 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§ 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 ofOTC Derivatives ......................................................... 19-26

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§ 19:7 Pre-Dodd-Frank Act Efforts to Increase Regulationof OTC Derivatives ..................................................... 19-28

§ 19:8 Wall Street Transparency and AccountabilityAct of 2010 ................................................................. 19-30

Appendix 19A 2016 Global Exchange-Traded DerivativesContract Volume (Futures and Options)... App. 19A-1

Appendix 19B Total Exchange-Traded Derivatives byRegion ....................................................... 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 DerivativesOutstanding (Notional Amountsin $ Billions) ............................................. App. 19E-1

Appendix 19F Global Futures and Options Traded byCategory.....................................................App. 19F-1

Chapter 20 An Introduction to Variable InsuranceProductsClifford E. Kirsch & Dodie Kent

§ 20:1 Background—Variable Annuities and VariableLife 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[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

§ 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

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§ 20:3.4 Life Insurance Sold to Businesses(Corporate Owned Life Insurance) ....................... 20-16

§ 20:4 Legal Structure and Changes....................................... 20-17Figure 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 RegardingProduct Design and Approval .............................. 20-20

[B] Federal Securities Laws Regarding ProductDesign 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

Variable Annuity Transactions......................... 20-28[B][2][a] NASD’s Suitability Rule Applying to

Recommended Transactions—FINRARule 2111...................................................... 20-28

[B][2][b] Guidance Concerning Variable AnnuityExchanges...................................................... 20-29

[B][3] Controls Over Marketing Material: Review,Content, and Filing Requirements................... 20-30

[B][4] Requirement to Adopt and Implement aSupervisory 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[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[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

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[C] Group Variable Annuities—Regulation UnderFINRA 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 IssuesPeter M. Rosenblum

§ 21:1 Introduction .................................................................. 21-2§ 21:2 Basic Investment Fund.................................................. 21-3§ 21:3 Side-by-Side Funds ........................................................ 21-4Figure 21-1 Side-by-Side Structure ......................................... 21-6§ 21:4 Mini-Master-Feeder Model ............................................ 21-7Figure 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§ 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 Performance Fee .......... 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[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 EmployeeCompensation...................................................... 21-23

[A] Business Issues .................................................... 21-23[B] Tax Issues ............................................................ 21-24

§ 21:7 Legal Issues Under the Investment Company Actand the Investment Advisers Act ................................ 21-24

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§ 21:7.1 Section 3(c)(1) of the InvestmentCompany 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 InvestmentCompany 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[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

[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§ 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

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[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 InterestHolders........................................................................ 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 forProperty................................................................ 22-20

§ 22:6 Federal Income Taxation of Residual InterestHolders........................................................................ 22-21

§ 22:6.1 Generally.............................................................. 22-21[A] Income or Loss .................................................... 22-21[B] Distributions........................................................ 22-21[C] Limitations on Losses .......................................... 22-21

§ 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

Interests ............................................................... 22-23[A] Generally.............................................................. 22-23[B] Stopping Transfers That Prevent Tax Being

Imposed on Excess Inclusions ............................. 22-23

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[C] Stopping Transfers to Foreign PersonsWho Will Not Hold the Residual Interestin Connection with a U.S. Trade or Business...... 22-25

§ 22:6.5 Wash Sale Rules and Dispositions of ResidualInterests ............................................................... 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 Mortgage Loan 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 “ReasonablyForeseeable” ..................................................... 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 IsSecured 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

(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 REMICRegular Interests ....................................... App. 22A-1

Appendix 22B Compliance with Specified PortionRules ......................................................... App. 22B-1

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Chapter 23 Alternatives to Traditional Securities OfferingsAdam 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

[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[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§ 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

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§ 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

§ 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[A] Overview .............................................................. 23-53[B] Benefits and Risk ................................................. 23-53

Chapter 24 Exchange-Traded Notes and Similar StructuredNotesLee 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

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§ 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§ 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

§ 24:9 Conclusion .................................................................. 24-25

Chapter 25 Insurance-Linked SecuritiesDaniel A. Rabinowitz

§ 25:1 Introduction .................................................................. 25-2§ 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

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[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[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

Chapter 26 Introduction to Life SettlementsGary 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

§ 26:2 The Life Settlement 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

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[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[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[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 LifeSettlements ...................................................... 26-27

[B][11] Impact of Increase in Cost on LifeInsurance Policies ............................................ 26-27

[B][12] Insurance Companies’ Contestability ofLife Insurance Policies ..................................... 26-27

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[B][13] Termination of Policy before Death ofInsured............................................................. 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 ........................................ 26-30Figure 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.

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. AXA 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

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.

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

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Chapter 27 Interval FundsJohn 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[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

§ 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

Table of Authorities .....................................................................T-1

Index ................................................................................................ I-1

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