Bruce W. Leppla Partner Lieff Cabraser Heimann & Bernstein, LLP x INVESTMENT COMPANY INSTITUTE LEGAL FORUM May 7, 2015 INVESTMENT FUNDS AS PLAINTIFFS: On Considering When and How to Act

Purpose WHEN  The situations that give rise to suits  The reluctance of the adviser and fund board to bring suits  The role and fiduciary duties of the key players in litigation HOW  Policies, procedures, and approaches  Monitoring and evaluating cases ACT  Serve as class action lead plaintiff or opt-out of the class  Factors to consider, representative case studies 2 Lieff Cabraser Heimann & Bernstein‘s (LCHB) presentation at ICI’s General Membership Meeting opened the conversation on investor companies as plaintiffs. We considered:

WHEN Situations: Investment loss that results from:  Disclosure or Non-Disclosure Issues  Negligence  Other, such as lack of compliance, breach of rights, frustration of purpose After due consideration of reluctance to sue:  Fact: Recovery would have minimal impact on funds’ NAVs  Attitude: Discomfort with litigation, suing parties to business relationships, and losing access to company management 3

WHEN (cont’d) And consideration of the role and fiduciary duties:  Without clear contractual language, adviser’s duties relevant to litigation are not clear  At a minimum, if an obligation is assumed in the IMA, there is a duty to fulfill that obligation  Board’s duties to represent interests of fund’s shareholders, supervise investment adviser, approve compliance policies and procedures, monitor conflicts of interest, and preserve fund assets. But not a clear duty to litigate 4

HOW Policies, Procedures and Approaches:  General policy approach:  “Investment recovery options with respect to material fund losses will be reviewed in a timely manner”  Detailed policy approach:  Monitoring for claims with a framework and processes  Evaluating Claims:  Enumerate criteria to weigh in taking action.  Conduct cost-benefit analysis of different courses of action  Maintain regular, formal communication with Board and record of processes observed 5

HOW (cont’d) Monitoring and Evaluating Cases:  Monitoring Pending Cases:  Monitoring services, law firms, in-house.  Evaluating Cases:  Factors: Fund losses, strength of case, nature of defendants, resources required  Decisions: Remain a class member or opt out?. 6

ACT Decision maker responsibility: What is the balance and how is it exercised between Adviser and Board?  Actively pursue lead plaintiff status in a class action?  Lead plaintiff represents the entire class  In limited circumstances a private investment manager role 7

ACT (cont’d)  Passively remain in the Class?  Participation in the Settlement Claims Process  Periodic reporting to Board  Claims filed  Recoveries received  Allocations  Activity in pending and contemplated individual actions  Opt-out of existing class action and pursue separate litigation? 8

“OPT-OUT”  Pursue separate litigation  Hire their own lawyers  Negotiate / litigate investment loss recovery on their own  These investors consider:  Fiduciary duty to entertain alternative methods to recover large losses  Potential for substantially greater financial recoveries  Many, substantial factors in evaluating “Opt-Out” litigation 9

10 RECOVERIES IN SELECT CLASS VS. OPT-OUT CASES

Thoughts for discussion with Advisers and Boards LCHB serves only as plaintiff’s counsel to Advisers and Boards. Our goal is to develop a relationship that will be of value when investment funds face the need to address loss recovery. Thoughts we suggest for your consideration:  Direct action presents opportunity for pre-litigation negotiation as a route to resolution of claim and loss recovery  It also provides immediate receipt of settlement funds, upon resolution  We can and do represent funds that do not want publicity but are interested in loss recovery The focus is on the benefit of loss recovery by pre-litigation negotiation and, only if necessary, litigation. As always, we are guided by the knowledge that any action taken or not taken should be in the fund’s best interest.. 11

12 In 2015, a new era has arrived with many investors committed to protecting themselves. BlackRock, Charles Schwab, Franklin Templeton, Lord Abbett, Nuveen, Regents of the Univ. of CA, and others have all filed investment loss recovery cases. A NEW ERA

Bruce W. Leppla Partner Lieff Cabraser Heimann & Bernstein, LLP x Acknowledgement: The ICI Legal Forum presentation, while not reproduced here, was derived, in part, from a similar presentation made at the 2015 ICI Mutual Funds and Investment Manager Conference by Mr. Leppla; Matt Thornton, Esq., ICI; Lowell Haky, Esq., Charles Schwab & Co.; John K. Forst, Esq., Lord Abbett & Co.; and Nora Jordan, Esq., Davis Polk. All made significant, valuable contributions to The ICI Legal Forum presentation.