Insights October 2001

Fund Democracy Insights

Resource Materials

October 2001

The October 2001 issue of Fund Democracy Insights considers emergency exemptions granted by the SEC in the wake of the September 11 tragedy, problems created by section 22(e) in such emergencies, and the relationship between mutual fund fee waivers and mutual fund rules.

Table of Contents - October 2001

In the Aftermath . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Suspending Redemptions Under Section 22(e) . . . . . . 6

Fee Waivers and Fund Rules . . . . . . . . . . . . . . . . . . . . . 8

Worth Reading on the Internet . . . . . . . . . . . . . . . . . . . 16

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Links to resource materials (.pdf files require Adobe Acrobat for viewing):

In the Aftermath

SEC Takes Action To Facilitate Reopening of Fair and Orderly Equities Markets, SEC Press Release (Sep. 14, 2001)
Order Under Sections 6(c), 17(d) and 38(a) of the Investment Company Act of 1940 Granting Exemptions from Certain Provisions of the Act and Certain Rules Thereunder, Investment Company Act Release No. 25156 (Sep. 14, 2001)
Commission Provides Additional Relief to Market Participants, SEC Press Release (Sep. 21, 2001)
Order Extending Prior Order Under Sections 6(c), 17(b) and 38(a) of the Investment Company Act of 1940 Granting Exemptions from Certain Provisions of the Act and Certain Rules Thereunder, Investment Company Act Release No. 25165 (Sep. 21, 2001)
Harvey L. Pitt, Testimony Concerning The State of the Nation's Financial Markets in the Wake of Recent Terrorist Attacks, before the House Financial Services Committee (Sep. 26, 2001)
Labor Department Proposes Exemption Relief Allowing Plan Loans and Extensions of Credit Necessary After Terrorist Attacks, PWBA Press Release 01-37 (Sep. 26, 2001)
Temporary Exemption for Certain Investment Advisers, Investment Company Act Release No. 23325 (July 22, 1998) (proposing to amend rule 15a-4 to permit fund boards to approve temporary advisory contracts in certain circumstances without meeting in person)
Temporary Exemption for Certain Investment Advisers, Investment Company Act Release No. 24177 (Nov. 29, 1999) (amending rule 15a-4 to permit fund boards to approve temporary advisory contracts in certain circumstances without meeting in person)
Section 12(d)(3) of the Investment Company Act
Rule 12d3-1 under the Investment Company Act

Suspending Redemptions Under Section 22(e)

Section 22(e) of the Investment Company Act
Emergency Securities Response Act of 2001, H.R. 3060, 107th Cong., 1st Sess. (amending section 12(k) of the Securities Exchange Act to expand SEC's emergency powers; unanimously approved by House Financial Services Committee on October 11, 2001) (.pdf file)
Financial Services Panel Approves Bill to Enhance SEC Emergency Authority, Press Release (Oct. 11, 2001)
Oxley Bill to Ensure Securities Agency has Adequate Emergency Authority, Press Release (Oct. 9, 2001)

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Fee Waivers and Fund Rules

Susan E. K. Christoffersen, Fee Waivers in Money Market Mutual Funds, Wharton School (May 2000) (arguing that retail fund managers use fee waivers to strategically adjust net advisory fees to current realizations in performance and expected fund flows) (.pdf file)
C. Meyrick Payne, Mutual Fund Directors Response to Poor Performance, Management Practice Inc. (not dated) (suggesting that directors request a temporary waiver of fees to address performance problems)
Trick or Treat: Mutual Fund Fee Waivers, Vanguard.com (Oct. 25, 2000)
Robert Barker, Real Fund-Expense Figures Get Easier to Find, Business Week (Apr. 24, 1998)
Robert Barker, Watch Out For Waived Fund Fees, businessweek.com (May 2000)
Money Market Mutual Fund Assets (Sep. 27, 2001)
Form of Gartenberg Memo
Registration Form Used by Open-End Management Investment Companies, Investment Company Act Release No. 23064 (Mar. 13, 1998)(adopting changes to mutual fund registration form and discussing treatment of fee waivers in fund fee table)

Worth Reading on the Internet

AFL-CIO Encourages Fund Involvement in Securities Class Actions, Investor Responsibility and Research Center (Fall 2000) (arguing that pension plans should treat the right to seek lead plaintiff status as a plan asset and consider it as an opportunity to influence management)
Investment Company Institute, IRA Ownership in 2001, 10 Fundamentals (Sep. 2001) (.pdf file)
John Benvenuto, Distribution Dilemma or Dynamic? The Right Type of Sub-Advisory Support Can Make the Difference, Financial Research Corporation (not dated) (discussing developing tensions in subadvisory relationships between managers and subadvisers)
Susan Christoffersen and David K. Musto, Demand Curves and the Pricing of Money Management, Wharton Financial Institutions Center (Aug. 1999 revision) (arguing that fund pricing, as well as other fund characteristics, is partly a function of self-selection, with price-insensitive investors being charged higher prices) (.pdf file)

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