Funds of funds were the hot topic for the Securities and Exchange Commission Wednesday. The Commission announced it's amended forms to increase transparency, and added three rules to the Investment Company Act that formalize its pattern of granting exemptions for funds of fund arrangements.

The new rules identify those circumstances that previously required, but will no longer require, exemptive applications to be completed. Effective July 31, 2006, Rule 12d-1-1 allows “cash sweeps,” through which stock or bond funds can invest available cash in money market funds; Rule 12d-2 grants extra leeway to funds of funds that invest primarily or only in one fund group; and Rule 12d-3 allows a fund that invests small amounts in many unrelated funds to structure its sales load.

Meanwhile, amendments to certain forms will require funds of funds to disclose both their own cumulative fees and those of any fund – registered or unregistered -- in which they invest.  

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