The staff of the SEC's Division of Investment Management issued an interpretive release in a question-and-answer format that addresses issues raised in connection with amendments to the fee table adopted in the Fund of Funds release in June 2006 and effective this year. That disclosure rule (Item 3 of Form N-1A) requires funds to disclose in their fee tables the expenses of investing in other funds under a line item titled “Acquired Fund Fees and Expenses.” Specifically, Item 3 requires a fund that invests in other funds (Acquired Funds) to disclose the fees and expenses associated with those investments. The Q&A only refers to Item 3 of Form N-1A; however, the guidance applies equally to similar items in Forms N-2 and N-3.

Notable guidance provided by the staff in the Q&A includes: 

  • a fund does not include in the fee table expenses associated with investments in structured finance vehicles, collateralized debt obligations, or other entities not traditionally considered pooled investment vehicles; 
  • The expense ratio does not include expenses an Acquired Fund has incurred through its investment in other companies; and 
  • Open-end feeder funds filing on Form N-1A must disclose in their fee tables the aggregate expenses of the feeder fund and the master fund.

Please click to access the Q&A.