Foley Counsels First Actively-Managed Exchange-Traded Fund

25 March 2008 Media Contact: Dan Farrell News

The Bear Stearns Current Yield Fund (YYY) Begins Trading on the American Stock Exchange on March 25, 2008.

Foley announced today that it served as lead regulatory counsel to Bear Stearns Active ETF Trust in bringing the first actively-managed exchanged-traded fund (ETF) to market. Shares of the Bear Stearns Current Yield Fund began trading on the American Stock Exchange (AMEX) under the ticker “YYY” today.

George T. Simon and Patrick Daugherty, the leaders of Foley’s ETF team, led a multi-disciplinary team in guiding Bear Stearns toward SEC approval. Daugherty took charge of disclosure issues, while Simon was responsible for designing the fundamental structure of the fund and dealing with SEC Division of Market Regulation and AMEX issues.

“ETF sponsors have been trying to bring actively-managed ETFs to market for over a decade, but have been prohibited by SEC concerns. Successfully bringing the first actively-managed ETF to market is a watershed event for the industry,” said George Simon. “The launching of this innovative product will certainly open the door to other actively-managed ETFs in the near term.”

“Working with Bear Stearns to bring the first actively-managed ETF to market has been an extremely demanding and rewarding experience for us,” said Patrick Daugherty, Chief Strategy Partner in Foley’s Business Law Department. “This marks a significant milestone in the evolution of ETFs and we are proud to be a part of this exciting development.”

An ETF is a financial pool similar to a mutual fund. Unlike a mutual fund, however, individual investors buy and sell ETF shares on a stock exchange, not directly from the fund. ETFs are popular with investors due to their trading flexibility and low fees, but they have traditionally been restricted to passively mirroring an index. Actively-managed ETFs have a fund manager who has full discretion to choose investments. They have significant advantages for investors, such as tax efficiency and greater flexibility, but have been held up until now due to SEC concerns that active ETFs provide the same transparency as stocks.

“There is a clear push-pull in efforts to achieve a balance between the SEC’s desire for full disclosure and accurate pricing information and the portfolio managers’ desire to disclose as little as possible for fear of front-running and free-riding,” said George Simon. “All of the products being processed now are fully transparent, but we have no doubt that the SEC will move to less transparent funds next.”

YYY will maintain transparency by reporting the entire underlying portfolio on daily basis via the website Since the fund is composed of short-term fixed income instruments, as opposed to equity, there is less threat of front runners copying the fund. The fund bears some resemblance to a money market fund, as it seeks capital preservation and capital appreciation by investing in high-grade debt securities. Unlike a money market fund, however, the fund does not seek a stable net asset value or observe other restrictions that are imposed on money market funds.

Foley is a leading law firm serving the ETF industry and has a history of innovation in the ETF arena. The firm counsels the entire range of industry participants – from index providers and fund sponsors to stock exchanges, specialists, investment advisors and sub-advisors, banks and institutional investors. The firm was instrumental in bringing StreetTracks Gold, the first commodity-based ETF, to market and serves as lead counsel to the CurrencyShares products, the first ETFs that track foreign currencies. The CurrencyShares products cover eight foreign currencies and have attracted over $3.25 billion in total assets.

Foley & Lardner LLP continually evolves to meet the changing legal needs of our clients. Our team-based approach, proprietary client service technology, and practice depth enhance client relationships while seeing clients through their most complex legal challenges. The BTI Consulting Group (Wellesley, Massachusetts) recently recognized Foley as one of the top four law firms shaping the U.S. legal market, while CIO magazine has named Foley to its CIO 100 list six times for our client-focused technology. With more than 1,000 attorneys in 22 offices and more than 50 practices, count on Foley for high-caliber business and legal insight.

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