SEC Staff Issues No-Action Letter Permitting In-Kind Purchases of Fund Shares by Affiliates

The SEC staff recently issued the attached no-action letter, which permitted affiliated persons of a fund (the “Fund”) to purchase Fund shares by contributing securities to the Fund (an “in-kind purchase”). We have summarized the pertinent aspects of the letter below. Please note that, for ease of reading, we have simplified certain facts (e.g., the funds at issue had multiple series and classes with differing investment objectives and strategies). Please refer to the letter for more information.

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SEC Staff Provides Guidance Under rule 202(a)(11)-1 under the Advisers Act

The SEC staff recently issued the attached letter, which provides interpretive guidance on select issues arising under Rule 202(a)(11)-1 under the Investment Advisers Act of 1940. The rule clarifies the circumstances under which a broker-dealer may rely on the exclusion from the definition of “investment adviser” under Section 202(a)(11)(C) of the Advisers Act. In particular, the rule provides that broker-dealers who provide non-discretionary advice, solely incidental to their brokerage services, regardless of the form of compensation received are not investment advisers for purposes of the Advisers Act.

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IRS Rules that Income from Derivatives on a Commodity Index is not “Qualifying Income” for Purposes of Subchapter M

The Internal Revenue Service recently issued Revenue Ruling 2006-1, which holds that income from a derivatives contract that provides exposure to a commodity index is not qualifying income for purposes of Section 851(b)(2) of the Internal Revenue Code.

The ruling involves a fund that invests substantially all its assets in debt securities and then enters into derivatives contracts linked to the return on a commodity index. The purpose of the contracts is to create investment exposure to changes in commodity prices.

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