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Final Rule:
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(1) |
(2) |
(3) |
(4) |
(5) |
(6) |
Name, Address, and Age |
Position(s) Held with Fund |
Term of Office and Length of Time Served |
Principal Occupation(s) During Past 5 Years |
Number of Portfolios in Fund Complex Overseen by Director or Nominee for Director |
Other Directorships Held by Director or Nominee for Director |
Instructions to paragraph (b)(1). 1. For purposes of this paragraph, the term "family relationship" means any relationship by blood, marriage, or adoption, not more remote than first cousin.
2. No nominee or person chosen to become a director or Officer who has not consented to act as such may be named in response to this Item. In this regard, see Rule 14a-4(d) under the Exchange Act (§ 240.14a-4(d)).
3. If fewer nominees are named than the number fixed by or pursuant to the governing instruments, state the reasons for this procedure and that the proxies cannot be voted for a greater number of persons than the number of nominees named.
4. For each director or nominee for election as director who is or would be an "interested person" of the Fund within the meaning of section 2(a)(19) of the Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(19)), describe, in a footnote or otherwise, the relationship, events, or transactions by reason of which the director or nominee is or would be an interested person.
5. State the principal business of any company listed under column (4) unless the principal business is implicit in its name.
6. Include in column (5) the total number of separate portfolios that a nominee for election as director would oversee if he were elected.
7. Indicate in column (6) directorships not included in column (5) that are held by a director or nominee for election as director in any company with a class of securities registered pursuant to section 12 of the Exchange Act (15 U.S.C. 78l), or subject to the requirements of section 15(d) of the Exchange Act (15 U.S.C. 78o(d)), or any company registered as an investment company under the Investment Company Act of 1940 (15 U.S.C. 80a), as amended, and name the companies in which the directorships are held. Where the other directorships include directorships overseeing two or more portfolios in the same Fund Complex, identify the Fund Complex and provide the number of portfolios overseen as a director in the Fund Complex rather than listing each portfolio separately.
(2) For each individual listed in column (1) of the table required by paragraph (b)(1) of this Item, except for any director or nominee for election as director who is not or would not be an "interested person" of the Fund within the meaning of section 2(a)(19) of the Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(19)), describe any positions, including as an officer, employee, director, or general partner, held with affiliated persons or principal underwriters of the Fund.
Instruction to paragraph (b)(2). When an individual holds the same position(s) with two or more registered investment companies that are part of the same Fund Complex, identify the Fund Complex and provide the number of registered investment companies for which the position(s) are held rather than listing each registered investment company separately.
(3) Describe briefly any arrangement or understanding between any director, nominee for election as director, Officer, or person chosen to become an Officer, and any other person(s) (naming the person(s)) pursuant to which he was or is to be selected as a director, nominee, or Officer.
Instruction to paragraph (b)(3). Do not include arrangements or understandings with directors or Officers acting solely in their capacities as such.
(4) Unless disclosed in the table required by paragraph (b)(1) of this Item, describe any positions, including as an officer, employee, director, or general partner, held by any director or nominee for election as director, who is not or would not be an "interested person" of the Fund within the meaning of section 2(a)(19) of the Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(19)), or Immediate Family Member of the director or nominee, during the past five years, with:
(i) The Fund;
(ii) An investment company, or a person that would be an investment company but for the exclusions provided by sections 3(c)(1) and 3(c)(7) of the Investment Company Act of 1940 (15 U.S.C. 80a-3(c)(1) and (c)(7)), having the same investment adviser, principal underwriter, or Sponsoring Insurance Company as the Fund or having an investment adviser, principal underwriter, or Sponsoring Insurance Company that directly or indirectly controls, is controlled by, or is under common control with an investment adviser, principal underwriter, or Sponsoring Insurance Company of the Fund;
(iii) An investment adviser, principal underwriter, Sponsoring Insurance Company, or affiliated person of the Fund; or
(iv) Any person directly or indirectly controlling, controlled by, or under common control with an investment adviser, principal underwriter, or Sponsoring Insurance Company of the Fund.
Instruction to paragraph (b)(4). When an individual holds the same position(s) with two or more portfolios that are part of the same Fund Complex, identify the Fund Complex and provide the number of portfolios for which the position(s) are held rather than listing each portfolio separately.
(5) For each director or nominee for election as director, state the dollar range of equity securities beneficially owned by the director or nominee as required by the following table:
(i) In the Fund; and
(ii) On an aggregate basis, in any registered investment companies overseen or to be overseen by the director or nominee within the same Family of Investment Companies as the Fund.
(1) |
(2) |
(3) |
Name of Director or Nominee |
Dollar Range of Equity Securities in the Fund |
Aggregate Dollar Range of Equity Securities in All Funds Overseen or to be Overseen by Director or Nominee in Family of Investment Companies |
Instructions to paragraph (b)(5). 1. Information should be provided as of the most recent practicable date. Specify the valuation date by footnote or otherwise.
2. Determine "beneficial ownership" in accordance with rule 16a-1(a)(2) under the Exchange Act (§ 240.16a-1(a)(2)).
3. If action is to be taken with respect to more than one Fund, disclose in column (2) the dollar range of equity securities beneficially owned by a director or nominee in each such Fund overseen or to be overseen by the director or nominee.
4. In disclosing the dollar range of equity securities beneficially owned by a director or nominee in columns (2) and (3), use the following ranges: none, $1-$10,000, $10,001-$50,000, $50,001-$100,000, or over $100,000.
(6) For each director or nominee for election as director who is not or would not be an "interested person" of the Fund within the meaning of section 2(a)(19) of the Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(19), and his Immediate Family Members, furnish the information required by the following table as to each class of securities owned beneficially or of record in:
(i) An investment adviser, principal underwriter, or Sponsoring Insurance Company of the Fund; or
(ii) A person (other than a registered investment company) directly or indirectly controlling, controlled by, or under common control with an investment adviser, principal underwriter, or Sponsoring Insurance Company of the Fund:
(1) |
(2) |
(3) |
(4) |
(5) |
(6) |
Name of Director or Nominee |
Name of Owners and Relationships to Director or Nominee |
Company |
Title of Class |
Value of Securities |
Percent of Class |
Instructions to paragraph (b)(6). 1. Information should be provided as of the most recent practicable date. Specify the valuation date by footnote or otherwise.
2. An individual is a "beneficial owner" of a security if he is a "beneficial owner" under either rule 13d-3 or rule 16a-1(a)(2) under the Exchange Act (§§ 240.13d-3 or 240.16a-1(a)(2)).
3. Identify the company in which the director, nominee, or Immediate Family Member of the director or nominee owns securities in column (3). When the company is a person directly or indirectly controlling, controlled by, or under common control with an investment adviser, principal underwriter, or Sponsoring Insurance Company, describe the company's relationship with the investment adviser, principal underwriter, or Sponsoring Insurance Company.
4. Provide the information required by columns (5) and (6) on an aggregate basis for each director (or nominee) and his Immediate Family Members.
(7) Unless disclosed in response to paragraph (b)(6) of this Item, describe any direct or indirect interest, the value of which exceeds $60,000, of each director or nominee for election as director who is not or would not be an "interested person" of the Fund within the meaning of section 2(a)(19) of the Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(19)), or Immediate Family Member of the director or nominee, during the past five years, in:
(i) An investment adviser, principal underwriter, or Sponsoring Insurance Company of the Fund; or
(ii) A person (other than a registered investment company) directly or indirectly controlling, controlled by, or under common control with an investment adviser, principal underwriter, or Sponsoring Insurance Company of the Fund.
Instructions to paragraph (b)(7). 1. A director, nominee, or Immediate Family Member has an interest in a company if he is a party to a contract, arrangement, or understanding with respect to any securities of, or interest in, the company.
2. The interest of the director (or nominee) and the interests of his Immediate Family Members should be aggregated in determining whether the value exceeds $60,000.
(8) Describe briefly any material interest, direct or indirect, of any director or nominee for election as director who is not or would not be an "interested person" of the Fund within the meaning of section 2(a)(19) of the Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(19)), or Immediate Family Member of the director or nominee, in any transaction, or series of similar transactions, since the beginning of the last two completed fiscal years of the Fund, or in any currently proposed transaction, or series of similar transactions, in which the amount involved exceeds $60,000 and to which any of the following persons was or is to be a party:
(i) The Fund;
(ii) An Officer of the Fund;
(iii) An investment company, or a person that would be an investment company but for the exclusions provided by sections 3(c)(1) and 3(c)(7) of the Investment Company Act of 1940 (15 U.S.C. 80a-3(c)(1) and (c)(7)), having the same investment adviser, principal underwriter, or Sponsoring Insurance Company as the Fund or having an investment adviser, principal underwriter, or Sponsoring Insurance Company that directly or indirectly controls, is controlled by, or is under common control with an investment adviser, principal underwriter, or Sponsoring Insurance Company of the Fund;
(iv) An Officer of an investment company, or a person that would be an investment company but for the exclusions provided by sections 3(c)(1) and 3(c)(7) of the Investment Company Act of 1940 (15 U.S.C. 80a-3(c)(1) and (c)(7)), having the same investment adviser, principal underwriter, or Sponsoring Insurance Company as the Fund or having an investment adviser, principal underwriter, or Sponsoring Insurance Company that directly or indirectly controls, is controlled by, or is under common control with an investment adviser, principal underwriter, or Sponsoring Insurance Company of the Fund;
(v) An investment adviser, principal underwriter, or Sponsoring Insurance Company of the Fund;
(vi) An Officer of an investment adviser, principal underwriter, or Sponsoring Insurance Company of the Fund;
(vii) A person directly or indirectly controlling, controlled by, or under common control with an investment adviser, principal underwriter, or Sponsoring Insurance Company of the Fund; or
(viii) An Officer of a person directly or indirectly controlling, controlled by, or under common control with an investment adviser, principal underwriter, or Sponsoring Insurance Company of the Fund.
Instructions to paragraph (b)(8). 1. Include the name of each director, nominee, or Immediate Family Member whose interest in any transaction or series of similar transactions is described and the nature of the circumstances by reason of which the interest is required to be described.
2. State the nature of the interest, the approximate dollar amount involved in the transaction, and, where practicable, the approximate dollar amount of the interest.
3. In computing the amount involved in the transaction or series of similar transactions, include all periodic payments in the case of any lease or other agreement providing for periodic payments.
4. Compute the amount of the interest of any director, nominee, or Immediate Family Member of the director or nominee without regard to the amount of profit or loss involved in the transaction(s).
5. As to any transaction involving the purchase or sale of assets, state the cost of the assets to the purchaser and, if acquired by the seller within two years prior to the transaction, the cost to the seller. Describe the method used in determining the purchase or sale price and the name of the person making the determination.
6. If the proxy statement relates to multiple portfolios of a series Fund with different fiscal years, then, in determining the date that is the beginning of the last two completed fiscal years of the Fund, use the earliest date of any series covered by the proxy statement.
7. Disclose indirect, as well as direct, material interests in transactions. A person who has a position or relationship with, or interest in, a company that engages in a transaction with one of the persons listed in paragraphs (b)(8)(i) through (b)(8)(viii) of this Item may have an indirect interest in the transaction by reason of the position, relationship, or interest. The interest in the transaction, however, will not be deemed "material" within the meaning of paragraph (b)(8) of this Item where the interest of the director, nominee, or Immediate Family Member arises solely from the holding of an equity interest (including a limited partnership interest, but excluding a general partnership interest) or a creditor interest in a company that is a party to the transaction with one of the persons specified in paragraphs (b)(8)(i) through (b)(8)(viii) of this Item, and the transaction is not material to the company.
8. The materiality of any interest is to be determined on the basis of the significance of the information to investors in light of all the circumstances of the particular case. The importance of the interest to the person having the interest, the relationship of the parties to the transaction with each other, and the amount involved in the transaction are among the factors to be considered in determining the significance of the information to investors.
9. No information need be given as to any transaction where the interest of the director, nominee, or Immediate Family Member arises solely from the ownership of securities of a person specified in paragraphs (b)(8)(i) through (b)(8)(viii) of this Item and the director, nominee, or Immediate Family Member receives no extra or special benefit not shared on a pro rata basis by all holders of the class of securities.
10. Transactions include loans, lines of credit, and other indebtedness. For indebtedness, indicate the largest aggregate amount of indebtedness outstanding at any time during the period, the nature of the indebtedness and the transaction in which it was incurred, the amount outstanding as of the latest practicable date, and the rate of interest paid or charged.
11. No information need be given as to any routine, retail transaction. For example, the Fund need not disclose that a director has a credit card, bank or brokerage account, residential mortgage, or insurance policy with a person specified in paragraphs (b)(8)(i) through (b)(8)(viii) of this Item unless the director is accorded special treatment.
(9) Describe briefly any direct or indirect relationship, in which the amount involved exceeds $60,000, of any director or nominee for election as director who is not or would not be an "interested person" of the Fund within the meaning of section 2(a)(19) of the Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(19)), or Immediate Family Member of the director or nominee, that exists, or has existed at any time since the beginning of the last two completed fiscal years of the Fund, or is currently proposed, with any of the persons specified in paragraphs (b)(8)(i) through (b)(8)(viii) of this Item. Relationships include:
(i) Payments for property or services to or from any person specified in paragraphs (b)(8)(i) through (b)(8)(viii) of this Item;
(ii) Provision of legal services to any person specified in paragraphs (b)(8)(i) through (b)(8)(viii) of this Item;
(iii) Provision of investment banking services to any person specified in paragraphs (b)(8)(i) through (b)(8)(viii) of this Item, other than as a participating underwriter in a syndicate; and
(iv) Any consulting or other relationship that is substantially similar in nature and scope to the relationships listed in paragraphs (b)(9)(i) through (b)(9)(iii) of this Item.
Instructions to paragraph (b)(9). 1. Include the name of each director, nominee, or Immediate Family Member whose relationship is described and the nature of the circumstances by reason of which the relationship is required to be described.
2. State the nature of the relationship and the amount of business conducted between the director, nominee, or Immediate Family Member and the person specified in paragraphs (b)(8)(i) through (b)(8)(viii) of this Item as a result of the relationship since the beginning of the last two completed fiscal years of the Fund or proposed to be done during the Fund's current fiscal year.
3. In computing the amount involved in a relationship, include all periodic payments in the case of any agreement providing for periodic payments.
4. If the proxy statement relates to multiple portfolios of a series Fund with different fiscal years, then, in determining the date that is the beginning of the last two completed fiscal years of the Fund, use the earliest date of any series covered by the proxy statement.
5. Disclose indirect, as well as direct, relationships. A person who has a position or relationship with, or interest in, a company that has a relationship with one of the persons listed in paragraphs (b)(8)(i) through (b)(8)(viii) of this Item may have an indirect relationship by reason of the position, relationship, or interest.
6. In determining whether the amount involved in a relationship exceeds $60,000, amounts involved in a relationship of the director (or nominee) should be aggregated with those of his Immediate Family Members.
7. In the case of an indirect interest, identify the company with which a person specified in paragraphs (b)(8)(i) through (b)(8)(viii) of this Item has a relationship; the name of the director, nominee, or Immediate Family Member affiliated with the company and the nature of the affiliation; and the amount of business conducted between the company and the person specified in paragraphs (b)(8)(i) through (b)(8)(viii) of this Item since the beginning of the last two completed fiscal years of the Fund or proposed to be done during the Fund's current fiscal year.
8. In calculating payments for property and services for purposes of paragraph (b)(9)(i) of this Item, the following may be excluded:
A. Payments where the transaction involves the rendering of services as a common contract carrier, or public utility, at rates or charges fixed in conformity with law or governmental authority; or
B. Payments that arise solely from the ownership of securities of a person specified in paragraphs (b)(8)(i) through (b)(8)(viii) of this Item and no extra or special benefit not shared on a pro rata basis by all holders of the class of securities is received.
9. No information need be given as to any routine, retail relationship. For example, the Fund need not disclose that a director has a credit card, bank or brokerage account, residential mortgage, or insurance policy with a person specified in paragraphs (b)(8)(i) through (b)(8)(viii) of this Item unless the director is accorded special treatment.
(10) If an Officer of an investment adviser, principal underwriter, or
Sponsoring Insurance Company of the Fund, or an Officer of a person directly or indirectly controlling, controlled by, or under common control with an investment adviser, principal underwriter, or Sponsoring Insurance Company of the Fund, serves, or has served since the beginning of the last two completed fiscal years of the Fund, on the board of directors of a company where a director of the Fund or nominee for election as director who is not or would not be an "interested person" of the Fund within the meaning of section 2(a)(19) of the Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(19)), or Immediate Family Member of the director or nominee, is, or was since the beginning of the last two completed fiscal years of the Fund, an Officer, identify:
(i) The company;
(ii) The individual who serves or has served as a director of the company and the period of service as director;
(iii) The investment adviser, principal underwriter, or Sponsoring Insurance Company or person controlling, controlled by, or under common control with the investment adviser, principal underwriter, or Sponsoring Insurance Company where the individual named in paragraph (b)(10)(ii) of this Item holds or held office and the office held; and
(iv) The director of the Fund, nominee for election as director, or Immediate Family Member who is or was an Officer of the company; the office held; and the period of holding the office.
Instruction to paragraph (b)(10). If the proxy statement relates to multiple portfolios of a series Fund with different fiscal years, then, in determining the date that is the beginning of the last two completed fiscal years of the Fund, use the earliest date of any series covered by the proxy statement.
(11) Provide in tabular form, to the extent practicable, the information required by Items 401(f) and (g), 404(a) and (c), and 405 of Regulation S-K (§§ 229.401(f) and (g), 229.404(a) and (c), and 229.405 of this chapter).
Instruction to paragraph (b)(11). Information provided under paragraph (b)(8) of this Item 22 is deemed to satisfy the requirements of Items 404(a) and (c) of Regulation S-K for information about directors, nominees for election as directors, and Immediate Family Members of directors and nominees, and need not be provided under this paragraph (b)(11).
(12) Describe briefly any material pending legal proceedings, other than ordinary routine litigation incidental to the Fund's business, to which any director or nominee for director or affiliated person of such director or nominee is a party adverse to the Fund or any of its affiliated persons or has a material interest adverse to the Fund or any of its affiliated persons. Include the name of the court where the case is pending, the date instituted, the principal parties, a description of the factual basis alleged to underlie the proceeding, and the relief sought.
(13) For all directors, and for each of the three highest-paid Officers that have aggregate compensation from the Fund for the most recently completed fiscal year in excess of $60,000 ("Compensated Persons"):
(i) Furnish the information required by the following table for the last fiscal year:
Compensation Table
(1) |
(2) |
(3) |
(4) |
(5) |
Name of Person, Position |
Aggregate Compensation From Fund |
Pension or Retirement Benefits Accrued as Part of Fund Expenses |
Estimated Annual Benefits Upon Retirement |
Total Compensation From Fund and Fund Complex Paid to Directors |
Instructions to paragraph (b)(13)(i). 1. For column (1), indicate, if necessary, the capacity in which the remuneration is received. For Compensated Persons that are directors of the Fund, compensation is amounts received for service as a director.
2. If the Fund has not completed its first full year since its organization, furnish the information for the current fiscal year, estimating future payments that would be made pursuant to an existing agreement or understanding. Disclose in a footnote to the Compensation Table the period for which the information is furnished.
3. Include in column (2) amounts deferred at the election of the Compensated Person, whether pursuant to a plan established under Section 401(k) of the Internal Revenue Code (26 U.S.C. 401(k)) or otherwise, for the fiscal year in which earned. Disclose in a footnote to the Compensation Table the total amount of deferred compensation (including interest) payable to or accrued for any Compensated Person.
4. Include in columns (3) and (4) all pension or retirement benefits proposed to be paid under any existing plan in the event of retirement at normal retirement date, directly or indirectly, by the Fund or any of its Subsidiaries, or by other companies in the Fund Complex. Omit column (4) where retirement benefits are not determinable.
5. For any defined benefit or actuarial plan under which benefits are determined primarily by final compensation (or average final compensation) and years of service, provide the information required in column (4) in a separate table showing estimated annual benefits payable upon retirement (including amounts attributable to any defined benefit supplementary or excess pension award plans) in specified compensation and years of service classifications. Also provide the estimated credited years of service for each Compensated Person.
6. Include in column (5) only aggregate compensation paid to a director for service on the board and other boards of investment companies in a Fund Complex specifying the number of such other investment companies.
(ii) Describe briefly the material provisions of any pension, retirement, or other plan or any arrangement other than fee arrangements disclosed in paragraph (b)(13)(i) of this Item pursuant to which Compensated Persons are or may be compensated for any services provided, including amounts paid, if any, to the Compensated Person under any such arrangements during the most recently completed fiscal year. Specifically include the criteria used to determine amounts payable under any plan, the length of service or vesting period required by the plan, the retirement age or other event that gives rise to payments under the plan, and whether the payment of benefits is secured or funded by the Fund.
(iii) With respect to each Compensated Person, business development companies must include the information required by Items 402(b)(2)(iv) and 402(c) of Regulation S-K (§§ 229.402(b)(2)(iv) and 229.402(c) of this chapter).
(14) Identify the standing committees of the Fund's board of directors, and provide the following information about each committee:
(i) A concise statement of the functions of the committee;
(ii) The members of the committee;
(iii) The number of committee meetings held during the last fiscal year; and
(iv) If the committee is a nominating or similar committee, state whether the committee will consider nominees recommended by security holders and, if so, describe the procedures to be followed by security holders in submitting recommendations.
* * * * *
Part 270 - RULES AND REGULATIONS, INVESTMENT COMPANY ACT OF 1940
3. The authority citation for Part 270 is amended by adding the following citations to read as follows:
Authority: 15 U.S.C. 80a-1 et seq., 80a-34(d), 80a-37, 80a-39 unless otherwise noted;
* * * * *
Section 270.10e-1 is also issued under 15 U.S.C. 80a-10(e);
Section 270.17a-8 is also issued under 15 U.S.C. 80a-6(c) and 80a-37(a);
Section 270.17d-1 is also issued under 15 U.S.C. 80a-6(c), 80a-17(d), and 80a-37(a);
Section 270.17e-1 is also issued under 15 U.S.C. 80a-6(c), 80a-30(a), and 80a-37(a);
Section 270.17g-1 is also issued under 15 U.S.C. 80a-6(c), 80a-17(d), 80a-17(g), and 80a-37(a);
Section 270.30e-1 is also issued under 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 78l, 78m, 78n, 78o(d), 78w(a), 80a-8, 80a-29, and 80a-37;
Section 270.31a-2 is also issued under 15 U.S.C. 80a-30.
* * * * *
4. The authority citations following §§270.17a-8, 270.17d-1, 270.17e-1,
270.17g-1, newly designated 270.30e-1, and 270.31a-2 are removed.
5. Section 270.0-1 is amended by adding paragraphs (a)(5) and (a)(6) to read as follows:
§ 270.0-1 Definition of terms used in this part.
(a) * * *
(5) The term administrator means any person who provides significant administrative or business affairs management services to an investment company.
(6)(i) A person is an independent legal counsel with respect to the directors who are not interested persons of an investment company ("disinterested directors") if:
(A) A majority of the disinterested directors reasonably determine in the exercise of their judgment (and record the basis for that determination in the minutes of their meeting) that any representation by the person of the company's investment adviser, principal underwriter, administrator ("management organizations"), or any of their control persons, since the beginning of the fund's last two completed fiscal years, is or was sufficiently limited that it is unlikely to adversely affect the professional judgment of the person in providing legal representation to the disinterested directors; and
(B) The disinterested directors have obtained an undertaking from such person to provide them with information necessary to make their determination and to update promptly that information when the person begins to represent, or materially increases his representation of, a management organization or control person.
(ii) The disinterested directors are entitled to rely on the information obtained from the person, unless they know or have reason to believe that the information is materially false or incomplete. The disinterested directors must re-evaluate their determination no less frequently than annually (and record the basis accordingly), except as provided in paragraph (iii) of this section.
(iii) After the disinterested directors obtain information that the person has begun to represent, or has materially increased his representation of, a management organization (or any of its control persons), the person may continue to be an independent legal counsel, for purposes of paragraph (a)(6)(i) of this section, for no longer than three months unless during that period the disinterested directors make a new determination under that paragraph.
(iv) For purposes of paragraphs (a)(6)(i) - (iii) of this section:
(A) The term person has the same meaning as in section 2(a)(28) of the Act (15 U.S.C. 80a-2(a)(28)) and, in addition, includes a partner, co-member, or employee of any person; and
(B) The term control person means any person (other than an investment company) directly or indirectly controlling, controlled by, or under common control with any of the investment company's management organizations.
* * * * *
6. Section 270.2a19-1 is removed and reserved.
7. Section 270.2a19-3 is added to read as follows:
§ 270.2a19-3 Certain investment company directors not considered interested persons because of ownership of index fund securities.
If a director of a registered investment company ("Fund") owns shares of a registered investment company (including the Fund) with an investment objective to replicate the performance of one or more broad-based securities indices ("Index Fund"), ownership of the Index Fund shares will not cause the director to be considered an "interested person" of the Fund or of the Fund's investment adviser or principal underwriter (as defined by section 2(a)(19)(A)(iii) and (B)(iii) of the Act (15 U.S.C. 80a-2(a)(19)(A)(iii) and (B)(iii)).
8. Section 270.10e-1 is added to read as follows:
§ 270.10e-1 Death, disqualification, or bona fide resignation of directors.
If a registered investment company, by reason of the death, disqualification, or bona fide resignation of any director, does not meet any requirement of the Act or any rule or regulation thereunder regarding the composition of the company's board of directors, the operation of the relevant subsection of the Act, rule, or regulation will be suspended as to the company:
(a) For 90 days if the vacancy may be filled by action of the board of directors; or
(b) For 150 days if a vote of stockholders is required to fill the vacancy.
9. Section 270.10f-3 is amended by redesignating paragraph (b)(11) as paragraph (b)(12), and adding new paragraph (b)(11) to read as follows:
§ 270.10f-3 Exemption for the acquisition of securities during the existence of an underwriting or selling syndicate.
* * * * *
(b) * * *
(11) Board Composition, Selection, and Representation:
(i) A majority of the directors of the investment company are not interested persons of the company, and those directors select and nominate any other disinterested directors of the company; and
(ii) Any person who acts as legal counsel for the disinterested directors of the company is an independent legal counsel.
* * * * *
10. Section 270.12b-1 is amended by revising paragraph (c) to read as follows:
§ 270.12b-1 Distribution of shares by registered open-end management investment company.
* * * * *
(c) A registered open-end management investment company may rely on the provisions of paragraph (b) of this section only if:
(1) A majority of the directors of the company are not interested persons of the company, and those directors select and nominate any other disinterested directors of the company; and
(2) Any person who acts as legal counsel for the disinterested directors of the company is an independent legal counsel;
* * * * *
11. Section 270.15a-4 is amended by:
a. Removing the word "and" at the end of paragraph (b)(2)(v);
b. Removing the period at the end of paragraph (b)(2)(vi)(C)(2) and adding in its place "; and"; and
c. Adding paragraph (b)(2)(vii) to read as follows:
§ 270.15a-4 Temporary exemption for certain investment advisers.
* * * * *
(b) * * *
(2) * * *
(vii)(A) A majority of the directors of the investment company are not interested persons of the company, and those directors select and nominate any other disinterested directors of the company; and
(B) Any person who acts as legal counsel for the disinterested directors of the company is an independent legal counsel.
12. Section 270.17a-7 is amended by:
a. Removing the "and" at the end of paragraph (e)(3);
b. Redesignating paragraph (f) as paragraph (g); and
c. Adding new paragraph (f) to read as follows:
§ 270.17a-7 Exemption of certain purchase or sale transactions between an investment company and certain affiliated persons thereof.
* * * * *
(f)(1) A majority of the directors of the investment company are not interested persons of the company, and those directors select and nominate any other disinterested directors of the company; and
(2) Any person who acts as legal counsel for the disinterested directors of the company is an independent legal counsel; and
* * * * *
13. Section 270.17a-8 is amended by:
a. Removing the ", and" at the end of paragraph (a)(2) and in its place adding a semi-colon;
b. Removing the period at the end of paragraph (b) and adding in its place "; and"; and
c. Adding new paragraph (c) to read as follows:
§ 270.17a-8 Mergers of certain affiliated investment companies.
* * * * *
(c)(1) A majority of the directors of the investment company are not interested persons of the company, and those directors select and nominate any other disinterested directors of the company; and
(2) Any person who acts as legal counsel for the disinterested directors of the company is an independent legal counsel.
14. Section 270.17d-1 is amended by:
a. Removing the word "and" at the end of paragraph (d)(7)(ii);
b. Redesignating paragraph (d)(7)(iii) as paragraph (d)(7)(iv);
c. Removing the period at the end of newly designated paragraph (d)(7)(iv) and adding in its place "; and"; and
d. Adding new paragraphs (d)(7)(iii) and (d)(7)(v) to read as follows:
§ 270.17d-1 Applications regarding joint enterprises or arrangements and certain profit-sharing plans.
* * * * *
(d) * * *
(7) * * *
(iii) The joint liability insurance policy does not exclude coverage for bona fide claims made against any director who is not an interested person of the investment company, or against the investment company if it is a co-defendant in the claim with the disinterested director, by another person insured under the joint liability insurance policy;
* * * * *
(v)(A) A majority of the directors of the investment company are not interested persons of the company, and those directors select and nominate any other disinterested directors of the company; and
(B) Any person who acts as legal counsel for the disinterested directors of the company is an independent legal counsel.
* * * * *
15. Section 270.17e-1 is amended by:
a. Removing the word "and" at the end of paragraph (b)(3);
b. Redesignating paragraph (c) as paragraph (d); and
c. Adding new paragraph (c) to read as follows:
§ 270.17e-1 Brokerage transactions on a securities exchange.
* * * * *
(c)(1) A majority of the directors of the investment company are not interested persons of the company, and those directors select and nominate any other disinterested directors of the company; and
(2) Any person who acts as legal counsel for the disinterested directors of the company is an independent legal counsel; and
* * * * *
16. Section 270.17g-1 is amended by revising paragraph (j) to read as follows:
§ 270.17g-1 Bonding of officers and employees of registered management investment companies.
* * * * *
(j) Any joint insured bond provided and maintained by a registered management investment company and one or more other parties shall be a transaction exempt from the provisions of section 17(d) of the Act (15 U.S.C. 80a-17(d)) and the rules thereunder, if:
(1) The terms and provisions of the bond comply with the provisions of this section;
(2) The terms and provisions of any agreement required by paragraph (f) of this section comply with the provisions of that paragraph; and
(3)(i) A majority of the directors of the investment company are not interested persons of the company, and those directors select and nominate any other disinterested directors of the company; and
(ii) Any person who acts as legal counsel for the disinterested directors of the company is an independent legal counsel.
* * * * *
17. Section 270.18f-3 is amended by redesignating paragraph (e) as paragraph (f), and adding new paragraph (e) to read as follows:
§ 270.18f-3 Multiple class companies.
* * * * *
(e) (1) A majority of the directors of the investment company are not interested persons of the company, and those directors select and nominate any other disinterested directors of the company; and
(2) Any person who acts as legal counsel for the disinterested directors of the company is an independent legal counsel.
* * * * *
18. Section 270.23c-3 is amended by revising paragraph (b)(8) to read as follows:
§ 270.23c-3 Repurchase offers by closed-end companies.
* * * * *
(b) * * *
(8)(i) A majority of the directors of the investment company are not interested persons of the company, and those directors select and nominate any other disinterested directors of the company; and
(ii) Any person who acts as legal counsel for the disinterested directors of the company is an independent legal counsel.
* * * * *
19. a. Redesignate § 270.30d-1 as § 270.30e-1;
b. In newly designated § 270.30e-1, in paragraph (a), revise "financial statements" to read "information"; and
c. Revise paragraph (d) to read as follows:
§ 270.30e-1 Reports to stockholders of management companies.
* * * * *
(d) An open-end company may transmit a copy of its currently effective prospectus or Statement of Additional Information, or both, under the Securities Act, in place of any report required to be transmitted to shareholders by this section, provided that the prospectus or Statement of Additional Information, or both, include all the information that would otherwise be required to be contained in the report by this section. Such prospectus or Statement of Additional Information, or both, shall be transmitted within 60 days after the close of the period for which the report is being made.
* * * * *
20. Redesignate § 270.30d-2 as § 270.30e-2, and in newly designated § 270.30e-2:
a. Revise "§ 270.30d-1" in the first and second sentences of paragraph (a) to read "§ 270.30e-1"; and
b. Revise "§270.30d-1(f)" in paragraph (b) to read "§ 270.30e-1(f)".
21. Section 270.31a-2 is amended by removing the period at end of paragraph (a)(3) and in its place adding a semi-colon, and adding paragraphs (a)(4) and (a)(5) to read as follows:
§ 270.31a-2 Records to be preserved by registered investment companies, certain majority-owned subsidiaries thereof, and other persons having transactions with registered investment companies.
(a) * * *
(4) Preserve for a period not less than six years, the first two years in an easily accessible place, any record of the initial determination that a director is not an interested person of the investment company, and each subsequent determination that the director is not an interested person of the investment company. These records must include any questionnaire and any other document used to determine that a director is not an interested person of the company; and
(5) Preserve for a period not less than six years, the first two years in an easily accessible place, any materials used by the disinterested directors of an investment company to determine that a person who is acting as legal counsel to those directors is an independent legal counsel.
* * * * *
22. Section 270.32a-4 is added to read as follows:
§ 270.32a-4 Independent audit committees.
A registered management investment company or a registered face-amount certificate company is exempt from the requirement of section 32(a)(2) of the Act (15 U.S.C. 80a-32(a)(2)) that the selection of the company's independent public accountant be submitted for ratification or rejection at the next succeeding annual meeting of shareholders, if:
(a) The company's board of directors has established a committee, composed solely of directors who are not interested persons of the company, that has responsibility for overseeing the fund's accounting and auditing processes ("audit committee");
(b) The company's board of directors has adopted a charter for the audit committee setting forth the committee's structure, duties, powers, and methods of operation or set forth such provisions in the fund's charter or bylaws; and
(c) The company maintains and preserves permanently in an easily accessible place a copy of the audit committee's charter and any modification to the charter.
Part 239 -- FORMS PRESCRIBED UNDER THE SECURITIES ACT OF 1933
23. The authority citation for part 239 continues to read, in part, as follows:
Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 77z-2, 77sss, 78c, 78l, 78m, 78n, 78o(d), 78u-5, 78w(a), 78ll(d), 79e, 79f, 79g, 79j, 79l, 79m, 79n, 79q, 79t, 80a-8, 80a-24, 80a-29, 80a-30, and 80a-37, unless otherwise noted.
* * * * *
Part 274 -- FORMS PRESCRIBED UNDER THE INVESTMENT COMPANY ACT OF 1940
24. The authority citation for part 274 continues to read as follows:
Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 78c(b), 78l, 78m, 78n, 78o(d), 80a-8, 80a-24, and 80a-29, unless otherwise noted.
Note: The text of Form N-1A does not and these amendments will not appear in the Code of Federal Regulations.
25. Form N-1A (referenced in §§ 239.15A and 274.11A), is amended by:
a. In Item 13 by adding Instructions 1 and 2 before paragraph (a).
b. In Item 13 by removing paragraphs (a), (b), and (c) and adding paragraphs (a) and (b) in their place.
c. In Item 13 by redesignating paragraphs (d) and (e) as paragraphs (c) and (d).
d. In Item 13 by removing "executive" from the first sentence of newly redesignated paragraph (c).
e. In Item 22 by adding paragraphs (b)(5) and (b)(6).
These additions and revisions read as follows:
Form N-1A
* * * * *
Item 13. Management of the Fund
Instructions.
1. For purposes of this Item 13, the terms below have the following meanings:
(a) The term "family of investment companies" means any two or more registered investment companies that:
(1) Share the same investment adviser or principal underwriter; and
(2) Hold themselves out to investors as related companies for purposes of investment and investor services.
(b) The term "fund complex" means two or more registered investment companies that:
(1) Hold themselves out to investors as related companies for purposes of investment and investor services; or
(2) Have a common investment adviser or have an investment adviser that is an affiliated person of the investment adviser of any of the other registered investment companies.
(c) The term "immediate family member" means a person's spouse; child residing in the person's household (including step and adoptive children); and any dependent of the person, as defined in section 152 of the Internal Revenue Code (26 U.S.C. 152).
(d) The term "officer" means the president, vice-president, secretary, treasurer, controller, or any other officer who performs policy-making functions.
2. When providing information about directors, furnish information for directors who are interested persons of the Fund separately from the information for directors who are not interested persons of the Fund. For example, when furnishing information in a table, you should provide separate tables (or separate sections of a single table) for directors who are interested persons and for directors who are not interested persons. When furnishing information in narrative form, indicate by heading or otherwise the directors who are interested persons and the directors who are not interested persons.
(a) Management Information.
(1) Provide the information required by the following table for each director and officer of the Fund, and, if the Fund has an advisory board, member of the board. Explain in a footnote to the table any family relationship between the persons listed.
(1) |
(2) |
(3) |
(4) |
(5) |
(6) |
Name, Address, and Age |
Position(s) Held with Fund |
Term of Office and Length of Time Served |
Principal Occupation(s) During Past 5 Years |
Number of Portfolios in Fund Complex Overseen by Director |
Other Directorships Held by Director |
Instructions.
1. For purposes of this paragraph, the term "family relationship" means any relationship by blood, marriage, or adoption, not more remote than first cousin.
2. For each director who is an interested person of the Fund, describe, in a footnote or otherwise, the relationship, events, or transactions by reason of which the director is an interested person.
3. State the principal business of any company listed under column (4) unless the principal business is implicit in its name.
4. Indicate in column (6) directorships not included in column (5) that are held by a director in any company with a class of securities registered pursuant to section 12 of the Securities Exchange Act (15 U.S.C. 78l) or subject to the requirements of section 15(d) of the Securities Exchange Act (15 U.S.C. 78o(d)) or any company registered as an investment company under the Investment Company Act, and name the companies in which the directorships are held. Where the other directorships include directorships overseeing two or more portfolios in the same fund complex, identify the fund complex and provide the number of portfolios overseen as a director in the fund complex rather than listing each portfolio separately.
(2) For each individual listed in column (1) of the table required by paragraph (a)(1) of this Item 13, except for any director who is not an interested person of the Fund, describe any positions, including as an officer, employee, director, or general partner, held with affiliated persons or principal underwriters of the Fund.
Instruction. When an individual holds the same position(s) with two or more registered investment companies that are part of the same fund complex, identify the fund complex and provide the number of registered investment companies for which the position(s) are held rather than listing each registered investment company separately.
(3) Describe briefly any arrangement or understanding between any director or officer and any other person(s) (naming the person(s)) pursuant to which he was selected as a director or officer.
Instruction. Do not include arrangements or understandings with directors or officers acting solely in their capacities as such.
(b) Board of Directors.
(1) Briefly describe the responsibilities of the board of directors with respect to the Fund's management.
Instruction. A Fund may respond to this paragraph by providing a general statement as to the responsibilities of the board of directors with respect to the Fund's management under the applicable laws of the state or other jurisdiction in which the Fund is organized.
(2) Identify the standing committees of the Fund's board of directors, and provide the following information about each committee:
(i) A concise statement of the functions of the committee;
(ii) The members of the committee;
(iii) The number of committee meetings held during the last fiscal year; and
(iv) If the committee is a nominating or similar committee, state whether the committee will consider nominees recommended by security holders and, if so, describe the procedures to be followed by security holders in submitting recommendations.
(3) Unless disclosed in the table required by paragraph (a)(1) of this Item 13, describe any positions, including as an officer, employee, director, or general partner, held by any director who is not an interested person of the Fund, or immediate family member of the director, during the two most recently completed calendar years with:
(i) The Fund;
(ii) An investment company, or a person that would be an investment company but for the exclusions provided by sections 3(c)(1) and 3(c)(7) (15 U.S.C. 80a-3(c)(1) and (c)(7)), having the same investment adviser or principal underwriter as the Fund or having an investment adviser or principal underwriter that directly or indirectly controls, is controlled by, or is under common control with an investment adviser or principal underwriter of the Fund;
(iii) An investment adviser, principal underwriter, or affiliated person of the Fund; or
(iv) Any person directly or indirectly controlling, controlled by, or under common control with an investment adviser or principal underwriter of the Fund.
Instruction. When an individual holds the same position(s) with two or more portfolios that are part of the same fund complex, identify the fund complex and provide the number of portfolios for which the position(s) are held rather than listing each portfolio separately.
(4) For each director, state the dollar range of equity securities beneficially owned by the director as required by the following table:
(i) In the Fund; and
(ii) On an aggregate basis, in any registered investment companies overseen by the director within the same family of investment companies as the Fund.
(1) |
(2) |
(3) |
Name of Director |
Dollar Range of Equity Securities in the Fund |
Aggregate Dollar Range of Equity Securities in All Registered Investment Companies Overseen by Director in Family of Investment Companies |
Instructions.
1. Information should be provided as of the end of the most recently completed calendar year. Specify the valuation date by footnote or otherwise.
2. Determine "beneficial ownership" in accordance with rule 16a-1(a)(2) under the Exchange Act (17 CFR 240.16a-1(a)(2)).
3. If the SAI covers more than one Fund or Series, disclose in column (2) the dollar range of equity securities beneficially owned by a director in each Fund or Series overseen by the director.
4. In disclosing the dollar range of equity securities beneficially owned by a director in columns (2) and (3), use the following ranges: none, $1-$10,000, $10,001-$50,000, $50,001-$100,000, or over $100,000.
(5) For each director who is not an interested person of the Fund, and his immediate family members, furnish the information required by the following table as to each class of securities owned beneficially or of record in:
(i) An investment adviser or principal underwriter of the Fund; or
(ii) A person (other than a registered investment company) directly or indirectly controlling, controlled by, or under common control with an investment adviser or principal underwriter of the Fund:
(1) |
(2) |
(3) |
(4) |
(5) |
(6) |
Name of Director |
Name of Owners and Relationships to Director |
Company |
Title of Class |
Value of Securities |
Percent of Class |
Instructions.
1. Information should be provided as of the end of the most recently completed calendar year. Specify the valuation date by footnote or otherwise.
2. An individual is a "beneficial owner" of a security if he is a "beneficial owner" under either rule 13d-3 or rule 16a-1(a)(2) under the Exchange Act (17 CFR 240.13d-3 or 240.16a-1(a)(2)).
3. Identify the company in which the director or immediate family member of the director owns securities in column (3). When the company is a person directly or indirectly controlling, controlled by, or under common control with an investment adviser or principal underwriter, describe the company's relationship with the investment adviser or principal underwriter.
4. Provide the information required by columns (5) and (6) on an aggregate basis for each director and his immediate family members.
(6) Unless disclosed in response to paragraph (b)(5) of this Item 13, describe any direct or indirect interest, the value of which exceeds $60,000, of each director who is not an interested person of the Fund, or immediate family member of the director, during the two most recently completed calendar years, in:
(i) An investment adviser or principal underwriter of the Fund; or
(ii) A person (other than a registered investment company) directly or indirectly controlling, controlled by, or under common control with an investment adviser or principal underwriter of the Fund.
Instructions.
1. A director or immediate family member has an interest in a company if he is a party to a contract, arrangement, or understanding with respect to any securities of, or interest in, the company.
2. The interest of the director and the interests of his immediate family members should be aggregated in determining whether the value exceeds $60,000.
(7) Describe briefly any material interest, direct or indirect, of any director who is not an interested person of the Fund, or immediate family member of the director, in any transaction, or series of similar transactions, during the two most recently completed calendar years, in which the amount involved exceeds $60,000 and to which any of the following persons was a party:
(i) The Fund;
(ii) An officer of the Fund;
(iii) An investment company, or a person that would be an investment company but for the exclusions provided by sections 3(c)(1) and 3(c)(7) (15 U.S.C. 80a-3(c)(1) and (c)(7)), having the same investment adviser or principal underwriter as the Fund or having an investment adviser or principal underwriter that directly or indirectly controls, is controlled by, or is under common control with an investment adviser or principal underwriter of the Fund;
(iv) An officer of an investment company, or a person that would be an investment company but for the exclusions provided by sections 3(c)(1) and 3(c)(7) (15 U.S.C. 80a-3(c)(1) and (c)(7)), having the same investment adviser or principal underwriter as the Fund or having an investment adviser or principal underwriter that directly or indirectly controls, is controlled by, or is under common control with an investment adviser or principal underwriter of the Fund;
(v) An investment adviser or principal underwriter of the Fund;
(vi) An officer of an investment adviser or principal underwriter of the Fund;
(vii) A person directly or indirectly controlling, controlled by, or under common control with an investment adviser or principal underwriter of the Fund; or
(viii) An officer of a person directly or indirectly controlling, controlled by, or under common control with an investment adviser or principal underwriter of the Fund.
Instructions.
1. Include the name of each director or immediate family member whose interest in any transaction or series of similar transactions is described and the nature of the circumstances by reason of which the interest is required to be described.
2. State the nature of the interest, the approximate dollar amount involved in the transaction, and, where practicable, the approximate dollar amount of the interest.
3. In computing the amount involved in the transaction or series of similar transactions, include all periodic payments in the case of any lease or other agreement providing for periodic payments.
4. Compute the amount of the interest of any director or immediate family member of the director without regard to the amount of profit or loss involved in the transaction(s).
5. As to any transaction involving the purchase or sale of assets, state the cost of the assets to the purchaser and, if acquired by the seller within two years prior to the transaction, the cost to the seller. Describe the method used in determining the purchase or sale price and the name of the person making the determination.
6. Disclose indirect, as well as direct, material interests in transactions. A person who has a position or relationship with, or interest in, a company that engages in a transaction with one of the persons listed in paragraphs (b)(7)(i) through (b)(7)(viii) of this Item 13 may have an indirect interest in the transaction by reason of the position, relationship, or interest. The interest in the transaction, however, will not be deemed "material" within the meaning of paragraph (b)(7) of this Item 13 where the interest of the director or immediate family member arises solely from the holding of an equity interest (including a limited partnership interest, but excluding a general partnership interest) or a creditor interest in a company that is a party to the transaction with one of the persons specified in paragraphs (b)(7)(i) through (b)(7)(viii) of this Item 13, and the transaction is not material to the company.
7. The materiality of any interest is to be determined on the basis of the significance of the information to investors in light of all the circumstances of the particular case. The importance of the interest to the person having the interest, the relationship of the parties to the transaction with each other, and the amount involved in the transaction are among the factors to be considered in determining the significance of the information to investors.
8. No information need be given as to any transaction where the interest of the director or immediate family member arises solely from the ownership of securities of a person specified in paragraphs (b)(7)(i) through (b)(7)(viii) of this Item 13 and the director or immediate family member receives no extra or special benefit not shared on a pro rata basis by all holders of the class of securities.
9. Transactions include loans, lines of credit, and other indebtedness. For indebtedness, indicate the largest aggregate amount of indebtedness outstanding at any time during the period, the nature of the indebtedness and the transaction in which it was incurred, the amount outstanding as of the end of the most recently completed calendar year, and the rate of interest paid or charged.
10. No information need be given as to any routine, retail transaction. For example, the Fund need not disclose that a director has a credit card, bank or brokerage account, residential mortgage, or insurance policy with a person specified in paragraphs (b)(7)(i) through (b)(7)(viii) of this Item 13 unless the director is accorded special treatment.
(8) Describe briefly any direct or indirect relationship, in which the amount involved exceeds $60,000, of any director who is not an interested person of the Fund, or immediate family member of the director, that existed at any time during the two most recently completed calendar years with any of the persons specified in paragraphs (b)(7)(i) through (b)(7)(viii) of this Item 13. Relationships include:
(i) Payments for property or services to or from any person specified in paragraphs (b)(7)(i) through (b)(7)(viii) of this Item 13;
(ii) Provision of legal services to any person specified in paragraphs (b)(7)(i) through (b)(7)(viii) of this Item 13;
(iii) Provision of investment banking services to any person specified in paragraphs (b)(7)(i) through (b)(7)(viii) of this Item 13, other than as a participating underwriter in a syndicate; and
(iv) Any consulting or other relationship that is substantially similar in nature and scope to the relationships listed in paragraphs (b)(8)(i) through (b)(8)(iii) of this Item 13.
Instructions.
1. Include the name of each director or immediate family member whose relationship is described and the nature of the circumstances by reason of which the relationship is required to be described.
2. State the nature of the relationship and the amount of business conducted between the director or immediate family member and the person specified in paragraphs (b)(7)(i) through (b)(7)(viii) of this Item 13 as a result of the relationship during the two most recently completed calendar years.
3. In computing the amount involved in a relationship, include all periodic payments in the case of any agreement providing for periodic payments.
4. Disclose indirect, as well as direct, relationships. A person who has a position or relationship with, or interest in, a company that has a relationship with one of the persons listed in paragraphs (b)(7)(i) through (b)(7)(viii) of this Item 13 may have an indirect relationship by reason of the position, relationship, or interest.
5. In determining whether the amount involved in a relationship exceeds $60,000, amounts involved in a relationship of the director should be aggregated with those of his immediate family members.
6. In the case of an indirect interest, identify the company with which a person specified in paragraphs (b)(7)(i) through (b)(7)(viii) of this Item 13 has a relationship; the name of the director or immediate family member affiliated with the company and the nature of the affiliation; and the amount of business conducted between the company and the person specified in paragraphs (b)(7)(i) through (b)(7)(viii) of this Item 13 during the two most recently completed calendar years.
7. In calculating payments for property and services for purposes of paragraph (b)(8)(i) of this Item 13, the following may be excluded:
A. Payments where the transaction involves the rendering of services as a common contract carrier, or public utility, at rates or charges fixed in conformity with law or governmental authority; or
B. Payments that arise solely from the ownership of securities of a person specified in paragraphs (b)(7)(i) through (b)(7)(viii) of this Item 13 and no extra or special benefit not shared on a pro rata basis by all holders of the class of securities is received.
8. No information need be given as to any routine, retail relationship. For example, the Fund need not disclose that a director has a credit card, bank or brokerage account, residential mortgage, or insurance policy with a person specified in paragraphs (b)(7)(i) through (b)(7)(viii) of this Item 13 unless the director is accorded special treatment.
(9) If an officer of an investment adviser or principal underwriter of the Fund, or an officer of a person directly or indirectly controlling, controlled by, or under common control with an investment adviser or principal underwriter of the Fund, served during the two most recently completed calendar years, on the board of directors of a company where a director of the Fund who is not an interested person of the Fund, or immediate family member of the director, was during the two most recently completed calendar years, an officer, identify:
(i) The company;
(ii) The individual who serves or has served as a director of the company and the period of service as director;
(iii) The investment adviser or principal underwriter or person controlling, controlled by, or under common control with the investment adviser or principal underwriter where the individual named in paragraph (b)(9)(ii) of this Item 13 holds or held office and the office held; and
(iv) The director of the Fund or immediate family member who is or was an officer of the company; the office held; and the period of holding the office.
(10) Discuss in reasonable detail the material factors and the conclusions with respect thereto that formed the basis for the board of directors approving the existing investment advisory contract. If applicable, include a discussion of any benefits derived or to be derived by the investment adviser from the relationship with the Fund such as soft dollar arrangements by which brokers provide research to the Fund or its investment adviser in return for allocating Fund brokerage.
Instruction. Conclusory statements or a list of factors will not be considered sufficient disclosure. The discussion should relate the factors to the specific circumstances of the Fund and the investment advisory contract.
* * * * *
Item 22. Financial Statements
* * * * *
(b) * * *
(5) The management information required by Item 13(a)(1).
(6) A statement that the SAI includes additional information about Fund directors and is available, without charge, upon request, and a toll-free (or collect) telephone number for shareholders to call to request the SAI.
* * * * *
Note: The text of Form N-2 does not and these amendments will not appear in the Code of Federal Regulations.
26. Form N-2 (referenced in §§ 239.14 and 274.11a-1) is amended by:
a. In Item 18 by adding Instructions 1 and 2 before paragraph 1.
b. In Item 18 by revising paragraphs 1 and 2.
c. In Item 18 by redesignating paragraphs 3 and 4 as paragraphs 4 and 14.
d. In Item 18 by adding paragraphs 3 and 5 through 13.
e. In Item 18, in newly designated paragraph 14, removing "executive" from the first sentence.
f. In Instruction 4 to Item 23 by removing "and" from the end of paragraph c.
g. In Instruction 4 to Item 23 by removing the period at the end of paragraph d. and in its place adding a semi-colon.
h. In Instruction 4 to Item 23 by adding paragraphs e. and f.
These additions and revisions read as follows:
Form N-2
* * * * *
Item 18. Management
Instructions:
1. For purposes of this Item 18, the terms below have the following meanings:
a. The term "family of investment companies" means any two or more registered investment companies that:
(i) Share the same investment adviser or principal underwriter; and
(ii) Hold themselves out to investors as related companies for purposes of investment and investor services.
b. The term "fund complex" means two or more registered investment companies that:
(i) Hold themselves out to investors as related companies for purposes of investment and investor services; or
(ii) Have a common investment adviser or have an investment adviser that is an affiliated person of the investment adviser of any of the other registered investment companies.
c. The term "immediate family member" means a person's spouse; child residing in the person's household (including step and adoptive children); and any dependent of the person, as defined in section 152 of the Internal Revenue Code (26 U.S.C. 152).
d. The term "officer" means the president, vice-president, secretary, treasurer, controller, or any other officer who performs policy-making functions.
2. When providing information about directors, furnish information for directors who are interested persons of the Registrant, as defined in Section 2(a)(19) of the 1940 Act (15 U.S.C. 80a-2(a)(19)) and the rules thereunder, separately from the information for directors who are not interested persons of the Registrant. For example, when furnishing information in a table, you should provide separate tables (or separate sections of a single table) for directors who are interested persons and for directors who are not interested persons. When furnishing information in narrative form, indicate by heading or otherwise the directors who are interested persons and the directors who are not interested persons.
1. Provide the information required by the following table for each director and officer of the Registrant, and, if the Registrant has an advisory board, member of the board. Explain in a footnote to the table any family relationship between the persons listed.
(1) |
(2) |
(3) |
(4) |
(5) |
(6) |
Name, Address, and Age |
Position(s) Held with Registrant |
Term of Office and Length of Time Served |
Principal Occupation(s) During Past 5 Years |
Number of Portfolios in Fund Complex Overseen by Director |
Other Directorships Held by Director |
Instructions:
1. For purposes of this paragraph, the term "family relationship" means any relationship by blood, marriage, or adoption, not more remote than first cousin.
2. For each director who is an interested person of the Registrant, as defined in Section 2(a)(19) of the 1940 Act (15 U.S.C. 80a-2(a)(19)) and the rules thereunder, describe, in a footnote or otherwise, the relationship, events, or transactions by reason of which the director is an interested person.
3. State the principal business of any company listed under column (4) unless the principal business is implicit in its name.
4. Indicate in column (6) directorships not included in column (5) that are held by a director in any company with a class of securities registered pursuant to section 12 of the Exchange Act (15 U.S.C. 78l) or subject to the requirements of section 15(d) of the Exchange Act (15 U.S.C. 78o(d)) or any company registered as an investment company under the 1940 Act (15 U.S.C. 80a), and name the companies in which the directorships are held. Where the other directorships include directorships overseeing two or more portfolios in the same fund complex, identify the fund complex and provide the number of portfolios overseen as a director in the fund complex rather than listing each portfolio separately.
2. For each individual listed in column (1) of the table required by paragraph 1 of this Item 18, except for any director who is not an interested person of the Registrant, as defined in Section 2(a)(19) of the 1940 Act (15 U.S.C. 80a-2(a)(19)) and the rules thereunder, describe any positions, including as an officer, employee, director, or general partner, held with affiliated persons or principal underwriters of the Registrant.
Instruction:
When an individual holds the same position(s) with two or more registered investment companies that are part of the same fund complex, identify the fund complex and provide the number of registered investment companies for which the position(s) are held rather than listing each registered investment company separately.
3. Describe briefly any arrangement or understanding between any director or officer and any other person(s) (naming the person(s)) pursuant to which he was selected as a director or officer.
Instruction:
Do not include arrangements or understandings with directors or officers acting solely in their capacities as such.
4. For each non-resident director or officer of the Registrant listed in column (1) of the table required by paragraph 1, disclose whether he has authorized an agent in the United States to receive notice and, if so, disclose the name and address of the agent.
5. Identify the standing committees of the Registrant's board of directors, and provide the following information about each committee:
(a) A concise statement of the functions of the committee;
(b) The members of the committee;
(c) The number of committee meetings held during the last fiscal year; and
(d) If the committee is a nominating or similar committee, state whether the committee will consider nominees recommended by security holders and, if so, describe the procedures to be followed by security holders in submitting recommendations.
6. Unless disclosed in the table required by paragraph 1 of this Item 18, describe any positions, including as an officer, employee, director, or general partner, held by any director who is not an interested person of the Registrant, as defined in Section 2(a)(19) of the 1940 Act (15 U.S.C. 80a-2(a)(19)) and the rules thereunder, or immediate family member of the director, during the two most recently completed calendar years with:
(a) The Registrant;
(b) An investment company, or a person that would be an investment company but for the exclusions provided by sections 3(c)(1) and 3(c)(7) of the 1940 Act (15 U.S.C. 80a-3(c)(1) and (c)(7)), having the same investment adviser or principal underwriter as the Registrant or having an investment adviser or principal underwriter that directly or indirectly controls, is controlled by, or is under common control with an investment adviser or principal underwriter of the Registrant;
(c) An investment adviser, principal underwriter, or affiliated person of the Registrant; or
(d) Any person directly or indirectly controlling, controlled by, or under common control with an investment adviser or principal underwriter of the Registrant.
Instruction:
When an individual holds the same position(s) with two or more portfolios that are part of the same fund complex, identify the fund complex and provide the number of portfolios for which the position(s) are held rather than listing each portfolio separately.
7. For each director, state the dollar range of equity securities beneficially owned by the director as required by the following table:
(i) In the Registrant; and
(ii) On an aggregate basis, in any registered investment companies overseen by the director within the same family of investment companies as the Registrant.
(1) |
(2) |
(3) |
Name of Director |
Dollar Range of Equity Securities in the Registrant |
Aggregate Dollar Range of Equity Securities in All Registered Investment Companies Overseen by Director in Family of Investment Companies |
Instructions:
1. Information should be provided as of the end of the most recently completed calendar year. Specify the valuation date by footnote or otherwise.
2. Determine "beneficial ownership" in accordance with rule 16a-1(a)(2) under the Exchange Act (17 CFR 240.16a-1(a)(2)).
3. In disclosing the dollar range of equity securities beneficially owned by a director in columns (2) and (3), use the following ranges: none, $1-$10,000, $10,001-$50,000, $50,001-$100,000, or over $100,000.
8. For each director who is not an interested person of the Registrant, as defined in Section 2(a)(19) of the 1940 Act (15 U.S.C. 80a-2(a)(19)) and the rules thereunder, and his immediate family members, furnish the information required by the following table as to each class of securities owned beneficially or of record in:
(a) An investment adviser or principal underwriter of the Registrant; or
(b) A person (other than a registered investment company) directly or indirectly controlling, controlled by, or under common control with an investment adviser or principal underwriter of the Registrant:
(1) |
(2) |
(3) |
(4) |
(5) |
(6) |
Name of Director |
Name of Owners and Relationships to Director |
Company |
Title of Class |
Value of Securities |
Percent of Class |
Instructions:
1. Information should be provided as of the end of the most recently completed calendar year. Specify the valuation date by footnote or otherwise.
2. An individual is a "beneficial owner" of a security if he is a "beneficial owner" under either rule 13d-3 or rule 16a-1(a)(2) under the Exchange Act (17 CFR 240.13d-3 or 240.16a-1(a)(2)).
3. Identify the company in which the director or immediate family member of the director owns securities in column (3). When the company is a person directly or indirectly controlling, controlled by, or under common control with an investment adviser or principal underwriter, describe the company's relationship with the investment adviser or principal underwriter.
4. Provide the information required by columns (5) and (6) on an aggregate basis for each director and his immediate family members.
9. Unless disclosed in response to paragraph 8 of this Item 18, describe any direct or indirect interest, the value of which exceeds $60,000, of each director who is not an interested person of the Registrant, as defined in Section 2(a)(19) of the 1940 Act (15 U.S.C. 80a-2(a)(19)) and the rules thereunder, or immediate family member of the director, during the two most recently completed calendar years, in:
(a) An investment adviser or principal underwriter of the Registrant; or
(b) A person (other than a registered investment company) directly or indirectly controlling, controlled by, or under common control with an investment adviser or principal underwriter of the Registrant.
Instructions:
1. A director or immediate family member has an interest in a company if he is a party to a contract, arrangement, or understanding with respect to any securities of, or interest in, the company.
2. The interest of the director and the interests of his immediate family members should be aggregated in determining whether the value exceeds $60,000.
10. Describe briefly any material interest, direct or indirect, of any director who is not an interested person of the Registrant, as defined in Section 2(a)(19) of the 1940 Act (15 U.S.C. 80a-2(a)(19)) and the rules thereunder, or immediate family member of the director, in any transaction, or series of similar transactions, during the two most recently completed calendar years, in which the amount involved exceeds $60,000 and to which any of the following persons was a party:
(a) The Registrant;
(b) An officer of the Registrant;
(c) An investment company, or a person that would be an investment company but for the exclusions provided by sections 3(c)(1) and 3(c)(7) of the 1940 Act (15 U.S.C.
80a-3(c)(1) and (c)(7)), having the same investment adviser or principal underwriter as the Registrant or having an investment adviser or principal underwriter that directly or indirectly controls, is controlled by, or is under common control with an investment adviser or principal underwriter of the Registrant;
(d) An officer of an investment company, or a person that would be an investment company but for the exclusions provided by sections 3(c)(1) and 3(c)(7) of the 1940 Act (15 U.S.C. 80a-3(c)(1) and (c)(7)), having the same investment adviser or principal underwriter as the Registrant or having an investment adviser or principal underwriter that directly or indirectly controls, is controlled by, or is under common control with an investment adviser or principal underwriter of the Registrant;
(e) An investment adviser or principal underwriter of the Registrant;
(f) An officer of an investment adviser or principal underwriter of the Registrant;
(g) A person directly or indirectly controlling, controlled by, or under common control with an investment adviser or principal underwriter of the Registrant; or
(h) An officer of a person directly or indirectly controlling, controlled by, or under common control with an investment adviser or principal underwriter of the Registrant.
Instructions:
1. Include the name of each director or immediate family member whose interest in any transaction or series of similar transactions is described and the nature of the circumstances by reason of which the interest is required to be described.
2. State the nature of the interest, the approximate dollar amount involved in the transaction, and, where practicable, the approximate dollar amount of the interest.
3. In computing the amount involved in the transaction or series of similar transactions, include all periodic payments in the case of any lease or other agreement providing for periodic payments.
4. Compute the amount of the interest of any director or immediate family member of the director without regard to the amount of profit or loss involved in the transaction(s).
5. As to any transaction involving the purchase or sale of assets, state the cost of the assets to the purchaser and, if acquired by the seller within two years prior to the transaction, the cost to the seller. Describe the method used in determining the purchase or sale price and the name of the person making the determination.
6. Disclose indirect, as well as direct, material interests in transactions. A person who has a position or relationship with, or interest in, a company that engages in a transaction with one of the persons listed in paragraphs 10(a) through (h) of this Item 18 may have an indirect interest in the transaction by reason of the position, relationship, or interest. The interest in the transaction, however, will not be deemed "material" within the meaning of paragraph 10 of this Item 18 where the interest of the director or immediate family member arises solely from the holding of an equity interest (including a limited partnership interest, but excluding a general partnership interest) or a creditor interest in a company that is a party to the transaction with one of the persons specified in paragraphs 10(a) through (h) of this Item 18, and the transaction is not material to the company.
7. The materiality of any interest is to be determined on the basis of the significance of the information to investors in light of all the circumstances of the particular case. The importance of the interest to the person having the interest, the relationship of the parties to the transaction with each other, and the amount involved in the transaction are among the factors to be considered in determining the significance of the information to investors.
8. No information need be given as to any transaction where the interest of the director or immediate family member arises solely from the ownership of securities of a person specified in paragraphs 10(a) through (h) of this Item 18 and the director or immediate family member receives no extra or special benefit not shared on a pro rata basis by all holders of the class of securities.
9. Transactions include loans, lines of credit, and other indebtedness. For indebtedness, indicate the largest aggregate amount of indebtedness outstanding at any time during the period, the nature of the indebtedness and the transaction in which it was incurred, the amount outstanding as of the end of the most recently completed calendar year, and the rate of interest paid or charged.
10. No information need be given as to any routine, retail transaction. For example, the Registrant need not disclose that a director has a credit card, bank or brokerage account, residential mortgage, or insurance policy with a person specified in paragraphs 10(a) through (h) of this Item 18 unless the director is accorded special treatment.
11. Describe briefly any direct or indirect relationship, in which the amount involved exceeds $60,000, of any director who is not an interested person of the Registrant, as defined in Section 2(a)(19) of the 1940 Act (15 U.S.C. 80a-2(a)(19)) and the rules thereunder, or immediate family member of the director, that existed at any time during the two most recently completed calendar years, with any of the persons specified in paragraphs 10(a) through (h) of this Item 18. Relationships include:
(a) Payments for property or services to or from any person specified in paragraphs 10(a) through (h) of this Item 18;
(b) Provision of legal services to any person specified in paragraphs 10(a) through (h) of this Item 18;
(c) Provision of investment banking services to any person specified in paragraphs 10(a) through (h) of this Item 18, other than as a participating underwriter in a syndicate; and
(d) Any consulting or other relationship that is substantially similar in nature and scope to the relationships listed in paragraphs 11(a) through (c) of this Item 18.
Instructions:
1. Include the name of each director or immediate family member whose relationship is described and the nature of the circumstances by reason of which the relationship is required to be described.
2. State the nature of the relationship and the amount of business conducted between the director or immediate family member and the person specified in paragraphs 10(a) through (h) of this Item 18 as a result of the relationship during the two most recently completed calendar years.
3. In computing the amount involved in a relationship, include all periodic payments in the case of any agreement providing for periodic payments.
4. Disclose indirect, as well as direct, relationships. A person who has a position or relationship with, or interest in, a company that has a relationship with one of the persons listed in paragraphs 10(a) through (h) of this Item 18 may have an indirect relationship by reason of the position, relationship, or interest.
5. In determining whether the amount involved in a relationship exceeds $60,000, amounts involved in a relationship of the director should be aggregated with those of his immediate family members.
6. In the case of an indirect interest, identify the company with which a person specified in paragraphs 10(a) through (h) of this Item 18 has a relationship; the name of the director or immediate family member affiliated with the company and the nature of the affiliation; and the amount of business conducted between the company and the person specified in paragraphs 10(a) through (h) of this Item 18 during the two most recently completed calendar years.
7. In calculating payments for property and services for purposes of paragraph 11(a) of this Item 18, the following may be excluded:
a. Payments where the transaction involves the rendering of services as a common contract carrier, or public utility, at rates or charges fixed in conformity with law or governmental authority; or
b. Payments that arise solely from the ownership of securities of a person specified in paragraphs 10(a) through (h) of this Item 18 and no extra or special benefit not shared on a pro rata basis by all holders of the class of securities is received.
8. No information need be given as to any routine, retail relationship. For example, the Registrant need not disclose that a director has a credit card, bank or brokerage account, residential mortgage, or insurance policy with a person specified in paragraphs 10(a) through (h) of this Item 18 unless the director is accorded special treatment.
12. If an officer of an investment adviser or principal underwriter of the Registrant, or an officer of a person directly or indirectly controlling, controlled by, or under common control with an investment adviser or principal underwriter of the Registrant, served during the two most recently completed calendar years, on the board of directors of a company where a director of the Registrant who is not an interested person of the Registrant, as defined in Section 2(a)(19) of the 1940 Act (15 U.S.C. 80a-2(a)(19)) and the rules thereunder, or immediate family member of the director, was during the two most recently completed calendar years, an officer, identify:
(a) The company;
(b) The individual who serves or has served as a director of the company and the period of service as director;
(c) The investment adviser or principal underwriter or person controlling, controlled by, or under common control with the investment adviser or principal underwriter where the individual named in paragraph 12(b) of this Item 18 holds or held office and the office held; and
(d) The director of the Registrant or immediate family member who is or was an officer of the company; the office held; and the period of holding the office.
13. Discuss in reasonable detail the material factors and the conclusions with respect thereto that formed the basis for the board of directors approving the existing investment advisory contract. If applicable, include a discussion of any benefits derived or to be derived by the investment adviser from the relationship with the Registrant such as soft dollar arrangements by which brokers provide research to the Registrant or its investment adviser in return for allocating fund brokerage.
Instruction:
Conclusory statements or a list of factors will not be considered sufficient disclosure. The discussion should relate the factors to the specific circumstances of the Registrant and the investment advisory contract.
* * * * *
Item 23. Financial Statements
* * * * *
Instructions
* * * * *
4. * * *
e. the management information required by paragraph 1 of Item 18; and
f. a statement that the SAI includes additional information about directors of the Registrant and is available, without charge, upon request, and a toll-free (or collect) telephone number for shareholders to call to request the SAI.
* * * * *
Note: The text of Form N-3 does not and these amendments will not appear in the Code of Federal Regulations.
27. Form N-3 (referenced in §§ 239.17a and 274.11b) is amended by:
a. In Item 20 adding instructions 1 and 2 before paragraph (a).
b. In Item 20 by revising paragraphs (a) and (b).
c. In Item 20 by redesignating paragraph (c) as paragraph (m).
d. In Item 20 by adding paragraphs (c) through (l).
e. In Item 20 by removing "executive" from the first sentence of newly designated paragraph (m).
f. In Instruction 4 to Item 27 by removing "and" from the end of paragraph (iii).
g. In Instruction 4 to Item 27 by removing the period at the end of paragraph (iv) and in its place adding a semi-colon.
h. In Instruction 4 to Item 27 by adding paragraphs (v) and (vi).
These additions and revisions read as follows:
Form N-3
* * * * *
Item 20. Management
Instructions:
1. For purposes of this Item 20, the terms below have the following meanings:
a. The term "family of investment companies" means any two or more registered investment companies that:
(i) Share the same investment adviser or principal underwriter; and
(ii) Hold themselves out to investors as related companies for purposes of investment and investor services.
b. The term "fund complex" means two or more registered investment companies that: (i) Hold themselves out to investors as related companies for purposes of investment and investor services; or
(ii) Have a common investment adviser or have an investment adviser that is an affiliated person of the investment adviser of any of the other registered investment companies.
c. The term "immediate family member" means a person's spouse; child residing in the person's household (including step and adoptive children); and any dependent of the person, as defined in section 152 of the Internal Revenue Code (26 U.S.C. 152).
d. The term "officer" means the president, vice-president, secretary, treasurer, controller, or any other officer who performs policy-making functions.
2. When providing information about directors, furnish information for directors who are interested persons of the Registrant, as defined in Section 2(a)(19) of the 1940 Act (15 U.S.C. 80a-2(a)(19)) and the rules thereunder, separately from the information for directors who are not interested persons of the Registrant. For example, when furnishing information in a table, you should provide separate tables (or separate sections of a single table) for directors who are interested persons and for directors who are not interested persons. When furnishing information in narrative form, indicate by heading or otherwise the directors who are interested persons and the directors who are not interested persons.
(a) Provide the information required by the following table for each member of the board of managers ("director") and officer of the Registrant, and, if the Registrant has an advisory board, member of the board. Explain in a footnote to the table any family relationship between the persons listed.
(1) |
(2) |
(3) |
(4) |
(5) |
(6) |
Name, Address, and Age |
Position(s) Held with Registrant |
Term of Office and Length of Time Served |
Principal Occupation(s) During Past 5 Years |
Number of Portfolios in Fund Complex Overseen by Director |
Other Directorships Held by Director |
Instructions:
1. For purposes of this paragraph, the term "family relationship" means any relationship by blood, marriage, or adoption, not more remote than first cousin.
2. For each director who is an interested person of the Registrant, as defined in Section 2(a)(19) of the 1940 Act (15 U.S.C. 80a-2(a)(19)) and the rules thereunder, describe, in a footnote or otherwise, the relationship, events, or transactions by reason of which the director is an interested person.
3. State the principal business of any company listed under column (4) unless the principal business is implicit in its name.
4. Indicate in column (6) directorships not included in column (5) that are held by a director in any company with a class of securities registered pursuant to section 12 of the Exchange Act (15 U.S.C. 78l) or subject to the requirements of section 15(d) of the Exchange Act (15 U.S.C. 78o(d)) or any company registered as an investment company under the 1940 Act (15 U.S.C. 80a-2(a)(19)), and name the companies in which the directorships are held. Where the other directorships include directorships overseeing two or more portfolios in the same fund complex, identify the fund complex and provide the number of portfolios overseen as a director in the fund complex rather than listing each portfolio separately.
(b) For each individual listed in column (1) of the table required by paragraph (a) of this Item 20, except for any director who is not an interested person of the Registrant, as defined in Section 2(a)(19) of the 1940 Act (15 U.S.C. 80a-2(a)(19)) and the rules thereunder, describe any positions, including as an officer, employee, director, or general partner, held with affiliated persons or principal underwriters of the Registrant.
Instruction:
When an individual holds the same position(s) with two or more registered investment companies that are part of the same fund complex, identify the fund complex and provide the number of registered investment companies for which the position(s) are held rather than listing each registered investment company separately.
(c) Describe briefly any arrangement or understanding between any director or officer and any other person(s) (naming the person(s)) pursuant to which he was selected as a director or officer.
Instruction:
Do not include arrangements or understandings with directors or officers acting solely in their capacities as such.
(d) Identify the standing committees of the Registrant's board of managers, and provide the following information about each committee:
(i) A concise statement of the functions of the committee;
(ii) The members of the committee;
(iii) The number of committee meetings held during the last fiscal year; and
(iv) If the committee is a nominating or similar committee, state whether the committee will consider nominees recommended by security holders and, if so, describe the procedures to be followed by security holders in submitting recommendations.
(e) Unless disclosed in the table required by paragraph (a) of this Item 20, describe any positions, including as an officer, employee, director, or general partner, held by any director who is not an interested person of the Registrant, as defined in Section 2(a)(19) of the 1940 Act (15 U.S.C. 80a-2(a)(19)) and the rules thereunder, or immediate family member of the director, during the two most recently completed calendar years with:
(i) The Registrant;
(ii) An investment company, or a person that would be an investment company but for the exclusions provided by sections 3(c)(1) and 3(c)(7) of the 1940 Act (15 U.S.C. 80a-3(c)(1) and (c)(7)), having the same Insurance Company, investment adviser, or principal underwriter as the Registrant or having an Insurance Company, investment adviser, or principal underwriter that directly or indirectly controls, is controlled by, or is under common control with the Insurance Company or an investment adviser or principal underwriter of the Registrant;
(iii) The Insurance Company or an investment adviser, principal underwriter, or affiliated person of the Registrant; or
(iv) Any person directly or indirectly controlling, controlled by, or under common control with the Insurance Company or an investment adviser or principal underwriter of the Registrant.
Instruction:
When an individual holds the same position(s) with two or more portfolios that are part of the same fund complex, identify the fund complex and provide the number of portfolios for which the position(s) are held rather than listing each portfolio separately.
(f) For each director, state the dollar range of equity securities beneficially owned by the director as required by the following table:
(i) In the Registrant; and
(ii) On an aggregate basis, in any registered investment companies overseen by the director within the same family of investment companies as the Registrant.
(1) |
(2) |
(3) |
Name of Director |
Dollar Range of Equity Securities in the Registrant |
Aggregate Dollar Range of Equity Securities in All Registered Investment Companies Overseen by Director in Family of Investment Companies |
Instructions:
1. Information should be provided as of the end of the most recently completed calendar year. Specify the valuation date by footnote or otherwise.
2. Determine "beneficial ownership" in accordance with rule 16a-1(a)(2) under the Exchange Act (17 CFR 240.16a-1(a)(2)).
3. If the SAI covers more than one sub-account, disclose in column (2) the dollar range of equity securities beneficially owned by a director in each sub-account overseen by the director.
4. In disclosing the dollar range of equity securities beneficially owned by a director in columns (2) and (3), use the following ranges: none, $1-$10,000, $10,001-$50,000, $50,001-$100,000, or over $100,000.
(g) For each director who is not an interested person of the Registrant, as defined in Section 2(a)(19) of the 1940 Act (15 U.S.C. 80a-2(a)(19)) and the rules thereunder, and his immediate family members, furnish the information required by the following table as to each class of securities owned beneficially or of record in:
(i) The Insurance Company or an investment adviser or principal underwriter of the Registrant; or
(ii) A person (other than a registered investment company) directly or indirectly controlling, controlled by, or under common control with the Insurance Company or an investment adviser or principal underwriter of the Registrant:
(1) |
(2) |
(3) |
(4) |
(5) |
(6) |
Name of Director |
Name of Owners and Relationships to Director |
Company |
Title of Class |
Value of Securities |
Percent of Class |
Instructions:
1. Information should be provided as of the end of the most recently completed calendar year. Specify the valuation date by footnote or otherwise.
2. An individual is a "beneficial owner" of a security if he is a "beneficial owner" under either rule 13d-3 or rule 16a-1(a)(2) under the Exchange Act (17 CFR 240.13d-3 or 240.16a-1(a)(2)).
3. Identify the company in which the director or immediate family member of the director owns securities in column (3). When the company is a person directly or indirectly controlling, controlled by, or under common control with the Insurance Company or an investment adviser or principal underwriter, describe the company's relationship with the Insurance Company, investment adviser, or principal underwriter.
4. Provide the information required by columns (5) and (6) on an aggregate basis for each director and his immediate family members.
(h) Unless disclosed in response to paragraph (g) of this Item 20, describe any direct or indirect interest, the value of which exceeds $60,000, of each director who is not an interested person of the Registrant, as defined in Section 2(a)(19) of the 1940 Act (15 U.S.C. 80a-2(a)(19)) and the rules thereunder, or immediate family member of the director, during the two most recently completed calendar years, in:
(i) The Insurance Company or an investment adviser or principal underwriter of the Registrant; or
(ii) A person (other than a registered investment company) directly or indirectly controlling, controlled by, or under common control with the Insurance Company or an investment adviser or principal underwriter of the Registrant.
Instructions:
1. A director or immediate family member has an interest in a company if he is a party to a contract, arrangement, or understanding with respect to any securities of, or interest in, the company.
2. The interest of the director and the interests of his immediate family members should be aggregated in determining whether the value exceeds $60,000.
(i) Describe briefly any material interest, direct or indirect, of any director who is not an interested person of the Registrant, as defined in Section 2(a)(19) of the 1940 Act (15 U.S.C. 80a-2(a)(19)) and the rules thereunder, or immediate family member of the director, in any transaction, or series of similar transactions, during the two most recently completed calendar years, in which the amount involved exceeds $60,000 and to which any of the following persons was a party:
(i) The Registrant;
(ii) An officer of the Registrant;
(iii) An investment company, or a person that would be an investment company but for the exclusions provided by sections 3(c)(1) and 3(c)(7) of the 1940 Act (15 U.S.C. 80a-3(c)(1) and (c)(7)), having the same Insurance Company, investment adviser, or principal underwriter as the Registrant or having an Insurance Company, investment adviser, or principal underwriter that directly or indirectly controls, is controlled by, or is under common control with the Insurance Company or an investment adviser or principal underwriter of the Registrant;
(iv) An officer of an investment company, or a person that would be an investment company but for the exclusions provided by sections 3(c)(1) and 3(c)(7) of the 1940 Act (15 U.S.C. 80a-3(c)(1) and (c)(7)), having the same Insurance Company, investment adviser, or principal underwriter as the Registrant or having an Insurance Company, investment adviser, or principal underwriter that directly or indirectly controls, is controlled by, or is under common control with the Insurance Company or an investment adviser or principal underwriter of the Registrant;
(v) The Insurance Company or an investment adviser or principal underwriter of the Registrant;
(vi) An officer of the Insurance Company or an investment adviser or principal underwriter of the Registrant;
(vii) A person directly or indirectly controlling, controlled by, or under common control with the Insurance Company or an investment adviser or principal underwriter of the Registrant; or
(viii) An officer of a person directly or indirectly controlling, controlled by, or under common control with the Insurance Company or an investment adviser or principal underwriter of the Registrant.
Instructions:
1. Include the name of each director or immediate family member whose interest in any transaction or series of similar transactions is described and the nature of the circumstances by reason of which the interest is required to be described.
2. State the nature of the interest, the approximate dollar amount involved in the transaction, and, where practicable, the approximate dollar amount of the interest.
3. In computing the amount involved in the transaction or series of similar transactions, include all periodic payments in the case of any lease or other agreement providing for periodic payments.
4. Compute the amount of the interest of any director or immediate family member of the director without regard to the amount of profit or loss involved in the transaction(s).
5. As to any transaction involving the purchase or sale of assets, state the cost of the assets to the purchaser and, if acquired by the seller within two years prior to the transaction, the cost to the seller. Describe the method used in determining the purchase or sale price and the name of the person making the determination.
6. Disclose indirect, as well as direct, material interests in transactions. A person who has a position or relationship with, or interest in, a company that engages in a transaction with one of the persons listed in paragraphs (i) through (viii) of paragraph (i) of this Item 20 may have an indirect interest in the transaction by reason of the position, relationship, or interest. The interest in the transaction, however, will not be deemed "material" within the meaning of paragraph (i) of this Item 20 where the interest of the director or immediate family member arises solely from the holding of an equity interest (including a limited partnership interest, but excluding a general partnership interest) or a creditor interest in a company that is a party to the transaction with one of the persons specified in paragraphs (i) through (viii) of paragraph (i) of this Item 20, and the transaction is not material to the company.
7. The materiality of any interest is to be determined on the basis of the significance of the information to investors in light of all the circumstances of the particular case. The importance of the interest to the person having the interest, the relationship of the parties to the transaction with each other, and the amount involved in the transaction are among the factors to be considered in determining the significance of the information to investors.
8. No information need be given as to any transaction where the interest of the director or immediate family member arises solely from the ownership of securities of a person specified in paragraphs (i) through (viii) of paragraph (i) of this Item 20 and the director or immediate family member receives no extra or special benefit not shared on a pro rata basis by all holders of the class of securities.
9. Transactions include loans, lines of credit, and other indebtedness. For indebtedness, indicate the largest aggregate amount of indebtedness outstanding at any time during the period, the nature of the indebtedness and the transaction in which it was incurred, the amount outstanding as of the end of the most recently completed calendar year, and the rate of interest paid or charged.
10. No information need be given as to any routine, retail transaction. For example, the Registrant need not disclose that a director has a credit card, bank or brokerage account, residential mortgage, or insurance policy with a person specified in paragraphs (i) through (viii) of paragraph (i) of this Item 20 unless the director is accorded special treatment.
(j) Describe briefly any direct or indirect relationship, in which the amount involved exceeds $60,000, of any director who is not an interested person of the Registrant, as defined in Section 2(a)(19) of the 1940 Act (15 U.S.C. 80a-2(a)(19)) and the rules thereunder, or immediate family member of the director, that existed at any time during the two most recently completed calendar years, with any of the persons specified in paragraphs (i) through (viii) of paragraph (i) of this Item 20. Relationships include:
(i) Payments for property or services to or from any person specified in paragraphs (i) through (viii) of paragraph (i) of this Item 20;
(ii) Provision of legal services to any person specified in paragraphs (i) through (viii) of paragraph (i) of this Item 20;
(iii) Provision of investment banking services to any person specified in paragraphs (i) through (viii) of paragraph (i) of this Item 20, other than as a participating underwriter in a syndicate; and
(iv) Any consulting or other relationship that is substantially similar in nature and scope to the relationships listed in paragraphs (j)(i) through (j)(iii) of this Item 20.
Instructions:
1. Include the name of each director or immediate family member whose relationship is described and the nature of the circumstances by reason of which the relationship is required to be described.
2. State the nature of the relationship and the amount of business conducted between the director or immediate family member and the person specified in paragraphs (i) through (viii) of paragraph (i) of this Item 20 as a result of the relationship during the two most recently completed calendar years.
3. In computing the amount involved in a relationship, include all periodic payments in the case of any agreement providing for periodic payments.
4. Disclose indirect, as well as direct, relationships. A person who has a position or relationship with, or interest in, a company that has a relationship with one of the persons listed in paragraphs (i) through (viii) of paragraph (i) of this Item 20 may have an indirect relationship by reason of the position, relationship, or interest.
5. In determining whether the amount involved in a relationship exceeds $60,000, amounts involved in a relationship of the director should be aggregated with those of his immediate family members.
6. In the case of an indirect interest, identify the company with which a person specified in paragraphs (i) through (viii) of paragraph (i) of this Item 20 has a relationship; the name of the director or immediate family member affiliated with the company and the nature of the affiliation; and the amount of business conducted between the company and the person specified in paragraphs (i) through (viii) of paragraph (i) of this Item 20 during the two most recently completed calendar years.
7. In calculating payments for property and services for purposes of paragraph (j)(i) of this Item 20, the following may be excluded:
a. Payments where the transaction involves the rendering of services as a common contract carrier, or public utility, at rates or charges fixed in conformity with law or governmental authority; or
b. Payments that arise solely from the ownership of securities of a person specified in paragraphs (i) through (viii) of paragraph (i) of this Item 20 and no extra or special benefit not shared on a pro rata basis by all holders of the class of securities is received.
8. No information need be given as to any routine, retail relationship. For example, the Registrant need not disclose that a director has a credit card, bank or brokerage account, residential mortgage, or insurance policy with a person specified in paragraphs (i) through (viii) of paragraph (i) of this Item 20 unless the director is accorded special treatment.
(k) If an officer of the Insurance Company or an investment adviser or principal underwriter of the Registrant, or an officer of a person directly or indirectly controlling, controlled by, or under common control with the Insurance Company or an investment adviser or principal underwriter of the Registrant, served during the two most recently completed calendar years, on the board of directors of a company where a director of the Registrant who is not an interested person of the Registrant, as defined in Section 2(a)(19) of the 1940 Act (15 U.S.C. 80a-2(a)(19)) and the rules thereunder, or immediate family member of the director, was during the two most recently completed calendar years, an officer, identify:
(i) The company;
(ii) The individual who serves or has served as a director of the company and the period of service as director;
(iii) The Insurance Company, investment adviser, or principal underwriter or person controlling, controlled by, or under common control with the Insurance Company, investment adviser, or principal underwriter where the individual named in paragraph (k)(ii) of this Item 20 holds or held office and the office held; and
(iv) The director of the Registrant or immediate family member who is or was an officer of the company; the office held; and the period of holding the office.
(l) Discuss in reasonable detail the material factors and the conclusions with respect thereto that formed the basis for the board of managers approving the existing investment advisory contract. If applicable, include a discussion of any benefits derived or to be derived by the investment adviser from the relationship with the Registrant such as soft dollar arrangements by which brokers provide research to the Registrant or its investment adviser in return for allocating fund brokerage.
Instruction:
Conclusory statements or a list of factors will not be considered sufficient disclosure. The discussion should relate the factors to the specific circumstances of the Registrant and the investment advisory contract.
* * * * *
Item 27. Financial Statements
* * * * *
Instructions
* * * * *
4. * * *
(v) the management information required by paragraph (a) of Item 20; and
(vi) a statement that the SAI includes additional information about members of the board of managers of the Registrant and is available, without charge, upon request, and a toll-free (or collect) telephone number for contract owners to call to request the SAI.
* * * * *
By the Commission.
Jonathan G. Katz
Secretary
January 2, 2001
1 For simplicity, this release focuses on mutual funds (i.e., open-end funds). The amendments we are adopting, however, apply to all management investment companies, except where noted.
2 See generally James M. Storey & Thomas M. Clyde, Mutual Fund Law Handbook § 7.2 (1998); Allan S. Mostoff & Olivia P. Adler, Organizing an Investment Company-Structural Considerations, in The Investment Company Regulation Deskbook § 2.4 (Amy L. Goodman ed., 1997).
3 As a result of their extensive involvement, and the general absence of shareholder activism, investment advisers typically dominate the funds they advise. See Role of Independent Directors of Investment Companies, Investment Company Act Release No. 24082 (Oct. 14, 1999) [64 FR 59826 (Nov. 3, 1999)] ("Proposing Release") at n.10 and accompanying text.
4 An investment adviser's shareholders often have an interest in a mutual fund that is quite different from the interests of the fund's own shareholders. For example, while fund shareholders ordinarily prefer lower fees (to achieve greater returns), shareholders of the fund's investment adviser might want to maximize profits through higher fees. See Proposing Release, supra note 3, at nn.11-25 and accompanying text, for a discussion of the comprehensive regulatory scheme established by the Act to address conflicts of interest between funds and their investment advisers.
5 We refer to directors who are not "interested persons" of the fund as "independent directors" or "disinterested directors." See section 2(a)(19) of the Act [15 U.S.C. 80a-2(a)(19)](defining "interested person").
6 The Investment Company Act establishes a system of "checks and balances," and relies on independent directors to "oversee the fund's operations so as to prevent abuses of investors." James M. Storey & Thomas M. Clyde, The Uneasy Chaperone 34 (2000). Directors also have broad responsibilities to monitor compliance with securities, corporate and other laws. Robert A. Robertson, Board Oversight of Mutual Fund Compliance Operations, Rev. Sec. & Comm. Reg., Oct. 24, 2000, at 1.
7 For example, in Japan, funds may be structured only in the form of securities investment trusts, which are primarily subject to regulation under the Securities Investment Trust Law. There is no board of directors or board of trustees, and under the Securities Investment Trust Law, a "trustor company" manages the trust assets on behalf of the beneficiaries of the trust. The Japanese Ministry of Finance approves the terms and conditions of securities investment trusts, and plays a supervisory role in the day-to-day operations of the trusts. See Yoshiki Shimada et al., Regulatory Frameworks for Pooled Investment Funds: A Comparison of Japan and the United States, 38 Va. J. Int'l L. 191 (1998).
8 See Proposing Release, supra note 3, at nn.24-25 and accompanying text.
9 Approximately 82.8 million individuals in 48.4 million households in the United States invest in funds. Investment Company Institute, Mutual Fund Fact Book 41 (2000).
10 See SEC, Notice of Sunshine Act Meetings (Feb. 18, 1999) [64 FR 8632 (Feb. 22, 1999)]; see also Transcripts from the Roundtable on the Role of Independent Investment Company Directors, Feb. 23-24, 1999 ["Roundtable Transcripts"]. The Roundtable Transcripts are available to the public in the Commission's public reference room and the Commission's Louis Loss Library. They are also available on the Commission's Internet web site http://www.sec.gov//divisions/investment/roundtable/iicdtoc.shtml.
11 See Proposing Release, supra note 3.
12 The comment letters and a summary of the comments prepared by Commission staff are available for public inspection and copying in the Commission's Public Reference Room, 450 Fifth Street, N.W., Washington, D.C. (File No. S7-23-99). The comment summary is also available on the Commission's Internet web site http://www.sec.gov/rules/extra/brownin1.htm
13 See Investment Company Institute, Report of the Advisory Group on Best Practices for Fund Directors: Enhancing a Culture of Independence and Effectiveness (June 24, 1999).
14 See, e.g., Arthur Levitt, Chairman, SEC, Remarks at the Mutual Fund Directors Education Council Conference (Feb. 17, 2000) (transcript available at http://www.sec.gov/news/speech/spch346.htm); Paul Roye, Director, Division of Investment Management, SEC, What Does It Take To Be an Effective Independent Director of a Mutual Fund?, Address at the ICI Workshop for New Fund Directors (Apr. 14, 2000) (transcript available at http://www.sec.gov/news/speech/spch364.htm).
15 Members of the Council include independent directors, corporate governance experts, investor advocates, academics, industry members, and investment management attorneys.
16 ABA, Report of the Task Force on Independent Director Counsel, Subcommittee of Investment Companies and Investment Advisers, Committee on Federal Regulation of Securities, Section of Business Law: Counsel to the Independent Directors of Registered Investment Companies (Sept. 8, 2000).
17 The Exemptive Rules are:
Rule 10f-3 (permitting funds to purchase securities in a primary offering when an affiliated broker-dealer is a member of the underwriting syndicate);
Rule 12b-1 (permitting use of fund assets to pay distribution expenses);
Rule 15a-4(b)(2) (permitting fund boards to approve interim advisory contracts without shareholder approval where the adviser or a controlling person receives a benefit in connection with the assignment of the prior contract);
Rule 17a-7 (permitting securities transactions between a fund and another client of the fund's adviser);
Rule 17a-8 (permitting mergers between certain affiliated funds);
Rule 17d-1(d)(7) (permitting funds and their affiliates to purchase joint liability insurance policies);
Rule 17e-1 (specifying conditions under which funds may pay commissions to affiliated brokers in connection with the sale of securities on an exchange);
Rule 17g-1(j) (permitting funds to maintain joint insured bonds);
Rule 18f-3 (permitting funds to issue multiple classes of voting stock); and
Rule 23c-3 (permitting the operation of interval funds by enabling closed-end funds to repurchase their shares from investors).
18 We discuss each of these conditions below. See infra Sections II.A.1, II.A.2, and II.A.3.
19 We have revised the amendments to rule 15a-4, which permits fund boards to approve interim advisory contracts without shareholder approval. Funds have relied on that rule when an advisory contract terminated in unforeseeable circumstances, such as the death of the fund's investment adviser. After we issued the Proposing Release, we amended rule 15a-4 to further permit interim advisory contracts in foreseeable circumstances, when an adviser or controlling person receives a benefit in connection with the termination of the prior advisory contract (e.g., in the context of an adviser merger). See Temporary Exemption for Certain Investment Advisers, Investment Company Act Release No. 24177 (Nov. 29, 1999) [64 FR 68019 (Dec. 6, 1999)]. Three commenters argued that the availability of the rule in unforeseeable circumstances should not depend on the fund's compliance with the conditions that we proposed to add to the Exemptive Rules. In addition, one commenter further argued that funds that do not comply with the new conditions could be constrained from terminating an adviser because they are unable to enter into an interim advisory contract without obtaining an exemptive order. In light of these comments, we have determined to amend only the paragraph of rule 15a-4 that permits interim advisory contracts in foreseeable circumstances. See rule 15a-4(b)(2).
20 As we noted in the Proposing Release, the Exemptive Rules provide exemptive relief that affords funds increased flexibility, cost reductions, and the ability to operate for the maximum benefit of investors. At the same time, these rules involve inherent conflicts of interest between funds and their managers, and therefore rely on independent directors to monitor those conflicts. While the Exemptive Rules have greatly expanded the responsibilities of fund boards, most have not contained conditions to enhance director independence and effectiveness. See Proposing Release, supra note 3, at n.30 and accompanying text. In the future we will be reluctant to issue exemptive orders premised on the oversight of independent directors, if the fund does not meet the new conditions we are today adopting.
21 The independent directors thus would need to comprise more than half of the membership of the board. The Investment Company Act generally requires that independent directors constitute at least 40 percent of the board. Section 10(a) of the Act [15 U.S.C. 80a-10(a)]. Section 10(b)(2) of the Act [15 U.S.C. 80a-10(b)(2)] requires, in effect, that independent directors comprise a majority of a fund's board if the fund's principal underwriter is an affiliate of the fund's adviser. Section 15(f)(1) of the Act [15 U.S.C. 80a-15(f)(1)] provides a safe harbor for the sale of an advisory business if directors who are not interested persons of the adviser constitute at least 75 percent of a fund's board for at least three years following the assignment of the advisory contract.
22 See Proposing Release, supra note 3, at text following n.44.
23 See Proposing Release, supra note 3, at nn.36-44 and accompanying text.
24 See Burks v. Lasker, 441 U.S. 471, 484 (1979) (discussing the "independent watchdog" function of independent directors).
25 In the Proposing Release, we proposed two alternative board composition standards: (i) a simple majority and (ii) a two-thirds supermajority, as recommended by the ICI Advisory Group Report. We are adopting a simple majority independence standard, which most commenters supported.
26 See infra Section II.A.2 (Selection and Nomination of Independent Directors).
27 Without the relief provided by rule 10e-1, the consequence of losing an independent director and failing to have a majority of independent directors would be significant and immediate because funds would lose the ability to rely on the Exemptive Rules.
28 Section 10(e) of the Act [15 U.S.C. 80a-10(e)] currently suspends the Act's board composition requirements for 30 days, if a fund's board may fill a director vacancy, or 60 days, if a shareholder vote is required to fill a vacancy. Section 10(e) also authorizes the Commission to issue rules or orders prescribing longer periods for filling board vacancies.
29 The time periods begin to run when the fund no longer meets the applicable board composition requirement, even if the fund is not yet aware that it no longer meets the requirement. Funds and directors should be mindful of their responsibilities to maintain the required percentage of independent directors, and should monitor director independence (and other composition issues) accordingly. A fund also could avoid problems posed by the time constraints of rule 10e-1 by maintaining a greater percentage of independent directors than the simple majority required by the Exemptive Rules. See ICI Advisory Group Report, supra note 13, at 10-12 (recommending as a best practice that funds have a two-thirds majority of independent directors).
30 Selection and nomination refers to the process by which board candidates are researched, recruited, considered, and formally named.
31 Rules 12b-1 and 23c-3 already require funds relying on those rules to commit the selection and nomination of independent directors to the discretion of those directors. We are amending rules 12b-1 and 23c-3 to conform their language regarding self-selection and nomination to the language of the other Exemptive Rules.
32 See Kenneth E. Scott, What Role Is There for Independent Directors of Mutual Funds?, 2 Vill. J. L. & Inv. Mgmt. 1, 4 (2000) ("Independence [of a director] is a reflection of how you got on the board and how you can be taken off."). The self-selection and self-nomination condition applies prospectively, i.e., to independent directors elected after the effective date of the rules. Thus, current independent directors who were not selected and nominated by other independent directors may continue to serve as independent directors until the end of their terms, but any new independent directors must be selected and nominated by the incumbent independent directors. See Proposing Release, supra note 3, at n.69 and accompanying text.
33 See The Robinson Humphrey Co., Inc., SEC No-Action Letter (Sept. 4, 1976) (analyzing the term "selected and proposed for election" in section 16(b) of the Act [15 U.S.C. 80a-16(b)] and concluding that independent directors had not been properly selected by other independent directors).
34 See amended rules 10f-3(b)(11)(ii); 12b-1(c)(2); 15a-4(b)(2)(vii)(B); 17a-7(f)(2); 17a-8(c)(2); 17d-1(d)(7)(v)(B); 17e-1(c)(2); 17g-1(j)(3)(ii); 18f-3(e)(2); and 23c-3(b)(8)(ii). We rely on the concept of "independence" both in this rule and in our auditor independence rule. See Revision of the Commission's Auditor Independence Requirements, Securities Act Release No. 7919 (Nov. 21, 2000) [65 FR 76008 (Dec. 5, 2000)] (adopting release); Revision of the Commission's Auditor Independence Requirements, Securities Act Release No. 7870 (June 30, 2000) [65 FR 43148 (July 12, 2000)] (proposing release). It is important to note, however, that we use the concept in distinct ways in these two rules. In adopting amendments to the auditor independence rule, our goal was to reduce the potential for conflicts of interest that impair the auditor's ability to conduct an objective and impartial audit. Under rules of professional responsibility, attorneys have an obligation zealously to represent their clients. See Model Code of Professional Responsibility EC 7-1; see also Model Rules of Professional Conduct ["ABA Model Rules"] Rules 1.2(d), 1.3 and 3.1 (1998). With respect to the independent counsel provisions in this rule, we use "independence" to refer to the limits on relationships with third parties that might affect counsel's capacity to provide zealous representation in advising and representing a fund's independent directors.
35 The amendments we are today adopting do not require that independent directors retain an independent counsel, but only that any person who acts as legal counsel to the independent directors be an "independent legal counsel." We requested comment on whether to require independent counsel for independent directors. Some commenters supported a requirement while others argued that independent directors should decide for themselves whether they need counsel. We have determined that not requiring independent counsel is the appropriate course at this time. We continue to believe, however, that a likely result of our rule amendments will be that many fund directors seek independent counsel. See ABA Task Force Report, supra note 16, at 3 ("The complexities of the Investment Company Act, the nature of the separate responsibilities of independent directors and the inherent conflicts of interest between a mutual fund and its managers effectively require that independent directors seek the advice of counsel in understanding and discharging their special responsibilities.").
36 We believe that independent directors' access to independent counsel is also of key importance when directors address questions of the appropriateness and legality (under sections 17(a) and 17(d) of the Act) of proposed transactions between the fund and its promoter, adviser, or principal underwriter (or any other affiliated person). These matters (and those described in the text above) go to the core of matters addressed by the Act and the relationship between the fund, its adviser, and shareholders and may require the directors to deny fund management's wishes. Independent counsel can assist directors in understanding management proposals, their legal implications, and the obligations of directors under the law. When a lawyer for the independent directors - however learned and well intentioned - also represents the fund's adviser, he may be reluctant to recommend courses of action to the directors that are opposed by the adviser.
37 See Proposing Release, supra note 3, at n.80 and accompanying text.
38 See Letter from Phillip Goldstein, Independent Director, Clemente Strategic Value Fund, to Jonathan G. Katz, Secretary, SEC (Feb. 1, 2000), File No. S7-23-99 ("shareholders of open-end funds . . . derive no benefit from independent directors"); Letter from George W. Karpus, President, Karpus Investment Management, to Arthur Levitt, Chairman, SEC (Jan. 21, 2000), File No. S7-23-99 (independent directors are not really independent, they are "house" directors "rubberstamping" management decisions); Letter from Weschler, Harwood, Halebian & Feffer, to Jonathan G. Katz, Secretary, SEC, (Jan. 14, 2000), File No. S7-23-99 ("There does not appear to be any credible evidence to support the view that independent directors are cost effective from the standpoint of public investors."). See also Samuel S. Kim, Note, Mutual Funds: Solving the Shortcomings of the Independent Director Response to Advisory Self-Dealing Through Use of the Undue Influence Standard, 98 Colum. L. Rev. 474 (1998).
39 When deciding excessive advisory fee cases, courts have cited directors' reliance on independent counsel as a factor evidencing director independence and conscientiousness. See Schuyt v. Rowe Price Prime Reserve Fund, Inc., 663 F. Supp. 962, 965, 982, 986 (S.D.N.Y.) (noting that "[d]uring all relevant times, the independent directors . . . had their own counsel" who was an "important resource" and whose advice "the record indicates the directors made every effort to keep . . . in mind as they deliberated"), aff'd, 835 F.2d 45 (2d Cir. 1987); Gartenberg v. Merrill Lynch Asset Management, Inc., 528 F. Supp. 1038, 1064 (S.D.N.Y. 1981) (noting that the "non-interested Trustees were represented by their own independent counsel . . . who acted to give them conscientious and competent advice"), aff'd, 694 F.2d 923 (2d Cir. 1982).
40 As noted above, the amendments as adopted do not require that independent directors retain legal counsel, but only that any person who acts as legal counsel to the independent directors be an "independent legal counsel." See supra note 35 and accompanying text. An attorney "acts as legal counsel" if an attorney-client relationship is established between counsel and the independent directors. We do not view a counsel as representing a fund's investment adviser merely because the counsel accepts payment of fees from the adviser for legal services performed on behalf of the fund or its independent directors as permitted by relevant legal ethics rules. See Proposing Release, supra note 3, at n.87.
41 We are adopting as proposed the definition of "person" as any natural person or a company (including a partnership or other association) as well as a partner, co-member, or employee of any person. Rule 0-1(a)(6)(iv)(A) [17 CFR 270.0-1(a)(6)(iv)(A)]. Thus, the independent directors should examine any conflicting representations of their individual attorney, as well as conflicting representations of that attorney's law firm, partners, and employees.
42 We are adopting as proposed the definition of "control person" as any person - other than a fund - directly or indirectly controlling, controlled by, or under common control with any of the fund's management organizations. Rule 0-1(a)(6)(iv)(B) [17 CFR 270.0-1(a)(6)(iv)(B)].
43 We have used the phrase "sufficiently limited" instead of "so limited," which we used in the proposal, to provide directors somewhat greater latitude than the proposal. It is our intent, therefore, that the scope of the rule be construed by reference to our discussion in this release and not the Proposing Release.
44 Rule 0-1(a)(6)(i)(A) [17 CFR 270.0-1(a)(6)(i)(A)]. As we stated in the Proposing Release, because the interests of a fund, its shareholders, and its independent directors are nearly always aligned, the independent legal counsel condition does not require independent directors to assess a counsel's representation of the fund itself. See Proposing Release, supra note 3, at n.94 and accompanying text. We do not consider counsel to the fund or to the fund's adviser to be legal counsel to the independent directors by virtue of the independent directors receiving and relying on advice from such counsel. However, the independent directors should be aware that they do not have their own counsel in those circumstances.
45 Rule 0-1(a)(6)(i)(B) [17 CFR 270.0-1(a)(6)(i)(B)]. A lawyer generally has an obligation to inform his or her client of changes in the nature of conflicts. See ABA Model Rules, Rule 1.7 (stating that a client may waive a conflict of interest only after consultation); see also ABA Comm. on Ethics and Professional Responsibility, Formal Op. 93-372 (1993) (a client's generic waiver of future conflicts would be invalid if the circumstances of a representation change so that the client's previous waiver was not fully informed when given); ABA Task Force Report, supra note 16 (providing specific guidance to independent directors of funds when selecting and using legal counsel, and to counsel who advise independent directors). However, a lawyer's obligations in this regard envision that the lawyer assess the effect of the potential conflict first before informing the client, see ABA Model Rules, Rule 1.7(a)(1), and in any event may vary among different jurisdictions. The provision in our final rule concerning counsel's undertaking is intended to enable the independent directors to obtain the information they need in order to make their own determination about the independence of their counsel.
46 We would not expect that the board meeting minutes would include detailed information such as law firm billing records. We would, however, expect the minutes to include material information the board considered and relied on in making its determination.
47 Rule 0-1(a)(6)(iii). This provision also would apply when conflicts arise as a result of a law firm merger, the hiring of a new partner or associate, the merger of two financial services firms, or as a result of a material increase in the scope or nature of the legal counsel's representation of a management organization.
48 Id.
49 Rule 0-1(a)(6)(i).
50 By adopting these rules, we do not intend to regulate the legal profession or to suggest that the existence of a professional relationship between the independent directors' counsel and a management organization would necessarily violate applicable codes of legal ethics. Moreover, we do not intend to create a presumption that a lawyer having such a professional relationship did not provide proper, objective legal advice, or that the board's reliance on its counsel was improper, or that any determination the board made based on counsel's advice was itself improper.
51 Whether counsel's representation of a management organization (or control person) is unrelated to a fund is a relevant factor for independent directors to consider when determining if the counsel may provide impartial advice to the independent directors. However, it is not a conclusive factor. Even if legal services are unrelated to a fund, those services may be so substantial, significant, or integral to the business of the management organization (or control person) that the independent directors could determine that the counsel is not an "independent legal counsel."
52 We do not intend this list of factors to be an exhaustive or mandatory list of factors the directors must consider. See, e.g., ABA Task Force Report, supra note 16, at 5-9 (providing guidance on factors that boards may wish to consider when assessing the quality and independence of their counsel).
53 After analyzing the factors, independent directors may, however, conclude that a counsel's representation of a fund's administrator or sub-adviser does not impede that counsel's ability to serve as an "independent counsel" to the independent directors. In evaluating whether representation of an administrator (or its control person) is "sufficiently limited" for the person to be an "independent counsel," we believe a board could differentiate between an administrator that merely performs ministerial tasks and one that has sponsored, organized, or promoted the fund. Independent directors could reach a similar conclusion regarding a sub-adviser. The Act does not distinguish an adviser from a sub-adviser. See section 2(a)(20) of the Act [15 U.S.C. 80a-2(a)(20)]. However, we believe that independent directors, in evaluating a counsel's conflicts, could give consideration to the nature of a sub-advisory relationship.
54 The ABA Task Force Report acknowledges that there are circumstances, such as litigation or other "obvious adversarial situations," in which joint or multiple representations may never be appropriate. ABA Task Force Report, supra note 16, at 8. We agree, but believe that there are additional circumstances, due to the unique conflicts that are inherent in the structure of investment companies, in which independent directors should not accept joint and multiple representations.
55 As discussed below, the compliance date for the legal counsel provision is July 1, 2002. See infra Section III.
56 See rule 0-1(a)(6)(ii). The independent directors are entitled to rely on that information unless they know or have reason to believe that the information is materially false or incomplete. Id. As a result, if counsel begins or materially increases the representation of a fund management organization but does not inform the independent directors, the independent directors can rely on the previous representation they received so that counsel's change in representation will not trigger the requirement that the independent directors make a new determination within three months. See rule 0-1(a)(6)(iii).
57 Paragraph (d) of rule 17d-1 provides an exemption from paragraph (a) of the rule, which prohibits a fund affiliate from participating in any joint enterprise, joint arrangement, or profit sharing plan without first obtaining a Commission order.
58 See rule 17d-1(d)(7)(iii). The amendments would prohibit exclusions for (i) bona fide (i.e., non-collusive) claims made against any independent director by another person insured under the joint insurance policy, and (ii) claims in which the fund is a co-defendant with an independent director in a claim brought by a co-insured.
59 See section 32(a)(2) of the Act [15 U.S.C. 80a-31(a)(2)].
60 Rule 32a-4(a).
61 Rule 32a-4(b).
62 Rule 32a-4(c). Commenters suggested that we permit the audit committee provisions to be set forth in the charter or bylaws of the fund. The final rule permits the fund either to adopt an audit committee charter or to set forth audit committee provisions in the fund's charter or bylaws. Rule 32a-4(b).
63 See Audit Committee Disclosure, Exchange Act Release No. 41987 (Oct. 7, 1999) [64 FR 55648 (Oct. 14, 1999)] at text following n.26 ("We recognize that how audit committees function may vary from company to company, and companies need flexibility to determine all of the specific duties and functions of their audit committees.").
64 Section 2(a)(19) of the Act disqualifies an individual from being considered an independent director if he or she knowingly has any direct or indirect beneficial interest in a security issued by the fund's investment adviser or principal underwriter, or by a controlling person of the adviser or underwriter. If a fund seeks to replicate the performance of a securities market index that includes securities of the fund's adviser (or principal underwriter or a controlling person of the adviser or principal underwriter), an issue could arise whether the director knowingly has an indirect beneficial interest in the securities of the adviser (or principal underwriter or controlling person). See Proposing Release, supra note 3, at n.138 and accompanying text.
65 The new rule does not address an independent director's ownership of securities of an actively managed fund that owns shares of the fund's adviser, underwriter or any of their controlling persons. As we discussed in the Proposing Release, we do not believe an independent director who owns shares of an actively managed fund would ordinarily "knowingly" have an indirect beneficial interest in the issuers of securities the fund holds, and thus ownership of such fund would not cause a director to be an "interested person" as defined by section 2(a)(19) of the Act. See Proposing Release, supra note 3, at n.140.
66 As we stated in the context of Form N-1A, a "broad-based index" is an index that "provides investors with a performance indicator of the overall applicable stock or bond markets, as appropriate. An index would not be considered to be broad-based if it is composed of securities of firms in a particular industry or group of related industries." See Disclosure of Mutual Fund Performance and Portfolio Managers, Investment Company Act Release No. 19382 (Apr. 6, 1993) [58 FR 19050 (Apr. 12, 1993)] at n.21.
67 Sections 2(a)(19)(A)(v) and (B)(v) of the Act provide that no person can be an independent director if he or she is, or is affiliated with, a registered broker-dealer.
68 Section 213(a)(1) of the Gramm-Leach-Bliley Act incorporates the conditions of current rule 2a19-1(a)(1) under the Act. As amended, section 2(a)(19) now permits an independent director to be an affiliate of a broker-dealer, but not if the director or his or her affiliate has executed portfolio transactions for, engaged in principal transactions with, or distributed shares for the fund or certain related funds or accounts within the past six months. Pub. L. No. 106-102, § 213, 113 Stat. 1338, 1397-98 (1999), to be codified at 15 U.S.C. 80a-2(a)(19)(A)(v) and (B)(v).
69 Under the Administrative Procedure Act [5 U.S.C. 553(b)], notice of proposed rulemaking is not required if the agency for good cause finds "that notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest." Section 213 of the Gramm-Leach-Bliley Act established new standards for determining independence under the circumstances addressed by rule 2a19-1, and the rule is no longer necessary. The Commission therefore finds that proposing the rescission of rule 2a19-1 for public comment is unnecessary.
70 Item 22(b)(1) of Schedule 14A; Items 13(a) and 22(b)(5) of Form N-1A; Item 18.1 and Instruction 4.e. to Item 23 of Form N-2; Item 20(a) and Instruction 4(v) to Item 27 of Form N-3. For convenience in discussing the requirements, we are not specifically referring to nominees for election as directors. The requirements, however, are applicable to nominees in proxy statements for the election of directors. The disclosure requirements in Item 22 of Schedule 14A also are applicable to information statements prepared in accordance with Regulation 14C and Schedule 14C [17 CFR 240.14c-101].
71 In response to privacy concerns raised by several commenters, we wish to clarify that a director may provide the address of the fund or the fund's adviser in the table and need not provide his personal address.
72 Instruction 4 to Item 22(b)(1) of Schedule 14A; Instruction 2 to Item 13(a) of Form N-1A; Instruction 2 to Item 18.1 of Form N-2; Instruction 2 to Item 20(a) of Form N-3.
73 As discussed below, however, we are excluding interested directors from the new conflicts of interest disclosure requirements which we proposed in order to give shareholders better information about independent directors. See infra note 84 and accompanying text.
74 Item 22(b)(5) of Schedule 14A; Item 13(b)(4) of Form N-1A; Item 18.7 of Form N-2; Item 20(f) of Form N-3.
75 17 CFR 240.13d-3.
76 17 CFR 240.16a-1(a)(2). We also have modified the proposal requiring disclosure of securities owned by an independent director and his immediate family members in an investment adviser or principal underwriter and persons controlling, controlled by, or under common control with an investment adviser or principal underwriter. This requirement is intended to illuminate potential conflicts of interest, and we therefore believe that any record or beneficial securities ownership in these entities should be disclosed, whether the beneficial ownership results from voting power, investment power, or economic interests. Therefore, we have revised the proposal to require disclosure of securities owned if covered by the definition of "beneficial ownership" contained in either rule 13d-3 or rule 16a-1(a)(2). Item 22(b)(6) and Instruction 2 to Item 22(b)(6) of Schedule 14A; Item 13(b)(5) and Instruction 2 to Item 13(b)(5) of Form N-1A; Item 18.8 and Instruction 2 of Item 18.8 of Form N-2; Item 20(g) and Instruction 2 of Item 20(g) of Form N-3.
77 Cf. redesignated Item 22(a)(1)(vi) of Schedule 14A (definition of fund complex).
78 Cf. Item H of Form N-SAR [17 CFR 274.101] (definition of "family of investment companies").
79 Item 22(a)(1)(iv) of Schedule 14A; Instruction 1(a) to Item 13 of Form N-1A; Instruction 1.a to Item 18 of Form N-2; Instruction 1.a to Item 20 of Form N-3.
80 Instruction 1 to Item 22(b)(5) of Schedule 14A.
81 Instruction 1 to Item 13(b)(4) of Form N-1A; Instruction 1 to Item 18.7 of Form N-2; Instruction 1 to Item 20(f) of Form N-3.
82 Items 22(b)(4), 22(b)(6), 22(b)(7), 22(b)(8), 22(b)(9), and 22(b)(10) of Schedule 14A; Items 13(b)(3), 13(b)(5), 13(b)(6), 13(b)(7), 13(b)(8), and 13(b)(9) of Form N-1A; Items 18.6, 18.8, 18.9, 18.10, 18.11, and 18.12 of Form N-2; Items 20(e), 20(g), 20(h), 20(i), 20(j), and 20(k) of Form N-3.
83 See Proposing Release, supra note 3, at n.149 and accompanying text.
84 Items 22(b)(4), 22(b)(6), 22(b)(7), 22(b)(8), 22(b)(9), and 22(b)(10) of Schedule 14A; Items 13(b)(3), 13(b)(5), 13(b)(6), 13(b)(7), 13(b)(8), and 13(b)(9) of Form N-1A; Items 18.6, 18.8, 18.9, 18.10, 18.11, and 18.12 of Form N-2; Items 20(e), 20(g), 20(h), 20(i), 20(j), and 20(k) of Form N-3.
85 See supra note 73 and accompanying text. In addition, we are retaining the existing requirement that funds disclose positions held by interested directors with affiliated persons or principal underwriters of the fund. Item 22(b)(2) of Schedule 14A; Item 13(a)(2) of Form N-1A; Item 18.2 of Form N-2; Item 20(b) of Form N-3.
86 Item 22(a)(1)(vii) of Schedule 14A; Instruction 1(c) to Item 13 of Form N-1A; Instruction 1.c to Item 18 of Form N-2; Instruction 1.c to Item 20 of Form N-3. The term "children" includes step and adoptive children. We are using the term "dependent" as defined in section 152 of the Internal Revenue Code. I.R.C. 152.
87 Proposed Item 22(a)(vi) of Schedule 14A; Proposed Instruction 1(b) to Item 13 of Form N-1A; Proposed Instruction 1.b. to Item 18 of Form N-2; Proposed Instruction 1.b. to Item 20 of Form N-3.
88 A number of commenters recommended that if the Commission adopted the proposed definition of "immediate family members," disclosure of potential conflicts of interest should be limited to those of which the director had actual knowledge. Since we are narrowing the definition of "immediate family member," incorporation of an actual knowledge standard is unnecessary.
89 Items 22(b)(4)(iv), 22(b)(6)(ii), 22(b)(7)(ii), 22(b)(8)(vii), 22(b)(9), and 22(b)(10)(iii) of Schedule 14A; Items 13(b)(3)(iv), 13(b)(5)(ii), 13(b)(6)(ii), 13(b)(7)(vii), 13(b)(8), and 13(b)(9)(iii) of Form N-1A; Items 18.6(d), 18.8(b), 18.9(b), 18.10(g), 18.11, and 18.12(c) of Form N-2; Items 20(e)(iv), 20(g)(ii), 20(h)(ii), 20(i)(vii), 20(j), and 20(k)(iii) of Form N-3.
90 See Item 22(b)(1) of Schedule 14A (requiring independent directors to disclose direct or indirect securities interests in any person under common control with fund's adviser); Item 22(b)(3) (requiring all directors to disclose material transactions to which the adviser, principal underwriter, administrator, any parent or subsidiary of such entities (other than another fund), or any subsidiary of the parent of such entities was or is to be a party).
91 Items 22(b)(7), 22(b)(8), and 22(b)(9) of Schedule 14A; Items 13(b)(6), 13(b)(7), and 13(b)(8) of Form N-1A; Items 18.9, 18.10, and 18.11 of Form N-2; Items 20(h), 20(i), and 20(j) of Form N-3. In the case of transactions, the $60,000 threshold applies to the size of a transaction, and a materiality standard applies to the director's or immediate family member's interest in the transaction. Item 22(b)(8) of Schedule 14A; Item 13(b)(7) of Form N-1A; Item 18.10 of Form N-2; Item 20(i) of Form N-3. The materiality of the interest is to be determined based on the significance of the information to investors in light of all the circumstances. Instruction 8 to Item 22(b)(8) of Schedule 14A; Instruction 7 to Item 13(b)(7) of Form N-1A; Instruction 7 to Item 18.10 of Form N-2; Instruction 7 to Item 20(i) of Form N-3. This is similar to a provision of the current proxy rules. Item 404(a) of Regulation S-K.
92 Cf. redesignated Item 22(b)(11) of Schedule 14A; Item 404(a) of Regulation S-K. In determining whether the $60,000 threshold is exceeded for interests and relationships, a director's interest is to be aggregated with those of his immediate family members. Instruction 2 to Item 22(b)(7) and Instruction 6 to Item 22(b)(9) of Schedule 14A; Instruction 2 to Item 13(b)(6) and Instruction 5 to Item 13(b)(8) of Form N-1A; Instruction 2 to Item 18.9 and Instruction 5 to Item 18.11 of Form N-2; Instruction 2 to Item 20(h) and Instruction 5 to Item 20(j) of Form N-3.
93 Items 22(b)(4) and 22(b)(7) of Schedule 14A.
94 Items 13(b)(3) and 13(b)(6) of Form N-1A; Items 18.6 and 18.9 of Form N-2; Items 20(e) and 20(h) of Form N-3.
95 Several commenters recommended that the Commission limit all conflicts of interest disclosure to a two-year period. These commenters argued that a two-year time period is consistent with the time limit for material business or professional relationships in section 2(a)(19) of the Act. We note, however, that the five-year time period for disclosure of positions and interests is currently required in the proxy rules. In fact, when the amendments to the proxy rules were adopted in 1994, most of the commenters that addressed the issue of time periods recommended limiting the disclosure of past relationships to the preceding five-year period. See Investment Company Act Rel. No. 20614 (Oct. 13, 1994) [59 FR 52689 (October 19, 1994)].
96 Items 22(b)(8) and 22(b)(9) of Schedule 14A.
97 Items 13(b)(7) and 13(b)(8) of Form N-1A; Items 18.10 and 18.11 of Form N-2; Items 20(i) and 20(j) of From N-3.
98 We also have modified the proposal to require funds to disclose in the SAI cross-directorships held by independent directors and their immediate family members during the last two most recently completed calendar years, rather than the last two fiscal years as proposed. Item 13(b)(9) of Form N-1A; Item 18.12 of Form N-2; Item 20(k) of Form N-3.
99 Instruction 11 to Item 22(b)(8) and Instruction 9 to Item 22(b)(9) of Schedule 14A; Instruction 10 to Item 13(b)(7) and Instruction 8 to Item 13(b)(8) of Form N-1A; Instruction 10 to Item 18.10 and Instruction 8 to Item 18.11 of Form N-2; Instruction 10 to Item 20(i) and Instruction 8 to Item 20(j) of Form N-3. We also note that sales load waivers granted to fund directors generally would not be required to be disclosed as "material" transactions or relationships, provided that such waivers are disclosed as otherwise required. See Instruction 3 to Item 18(c) of Form N-1A; Instruction 3 to Item 5.2 of Form N-2; Instruction to Item 23(b) of Form N-3 (requiring funds to provide explanations for any differences in the price at which securities are offered generally to the public and the prices at which securities are offered to any class of individuals).
100 Items 7(e) and 22(b)(14) of Schedule 14A; Item 13(b)(2) of Form N-1A; Item 18.5 of Form N-2; Item 20(d) of Form N-3.
101 Item 13(b)(10) of Form N-1A; Item 18.13 of Form N-2; Item 20(l) of Form N-3.
102 United States General Accounting Office, Mutual Fund Fees: Additional Disclosure Could Encourage Price Competition (June 2000) at 97.
103 Instruction 3 to Item 22(b) of Schedule 14A; Instruction 2 to Item 13 of Form N-1A; Instruction 2 to Item 18 of Form N-2; Instruction 2 to Item 20 of Form N-3.
104 We reiterate that funds may present information regarding independent and interested directors in a single table or chart, so long as the information for independent and interested directors is provided in separate sections within the table or chart. See Proposing Release, supra note 3, at text accompanying and following n.226.
105 See rule 31a-2(a)(4), (5).
106 For a discussion of the Commission staff's views on the types of professional and business relationships that may be considered material for purposes of sections 2(a)(19)(A)(vi) and (B)(vi) of the Act, see Interpretive Matters Concerning Independent Directors of Investment Companies, Investment Company Act Release No. 24083 (Oct. 14, 1999) [64 FR 59877 (Nov. 3, 1999)].
107 See rule 17d-1(d)(7)(iii).
108 17 CFR 230.485.
109 17 CFR 230.485(b). This also would apply to closed-end interval funds filing post-effective amendments pursuant to rule 486(b) under the Securities Act. 17 CFR 230.486(b).
110 17 CFR 230.485(a) and 230.485(b). Likewise, closed-end interval funds filing future post-effective amendments must determine whether they must file pursuant to rule 486(a) or may file pursuant to rule 486(b) of the Securities Act. 17 CFR 230.486(a) and 230.486(b).
111 See Proposing Release, supra note 3, at text following n.33.
112 One commenter stated that the Commission's proposed amendments and rules will increase the costs of relying on the Exemptive Rules, and that the "financial impact of the [Commission's] Proposal is underestimated." The commenter did not provide specific dollar figures to quantify what it believed were more accurate reflections of the possible costs of the Amendments. Moreover, whether a particular fund incurs additional costs, and the amount of those costs, will depend upon a number of factors specific to the fund.
113 See Proposing Release, supra note 3, at n.39 and accompanying text.
114 Under some circumstances a vacancy on the board may be filled by the board of directors. See section 16(a) of the Act. In those cases, the fund would not incur the costs of the proxy statement and shareholder meeting.
115 See Proposing Release, supra note 3, at n.66 and accompanying text.
116 As discussed above, we are amending rule 0-1 to include a definition of "independent legal counsel." See Proposing Release, supra note 3, at n.87 and accompanying text; see also infra notes 120-125 and accompanying text (discussing the costs and benefits of this proposed definition).
117 In connection with this new definition, we also are amending rule 0-1 to define an "administrator" as any person who provides significant administrative or business affairs management services to a fund. This definition is substantially similar to the definition of administrator that is currently contained in Item 22(a)(1)(i) of Schedule 14A and Item 15(h)(1) of Form N-1A. Adding this definition to rule 0-1 should benefit funds by helping to clarify the scope of the definition of independent legal counsel. We are not aware of any costs that would be associated with this definition of administrator.
118 We are amending rule 0-1 to define "control person" as any person (other than a registered investment company) directly or indirectly controlling, controlled by, or under common control with a fund's investment adviser, principal underwriter, or administrator. This definition should benefit funds by helping to clarify the scope of the definition of independent legal counsel. We are not aware of any costs that would be associated with this definition.
119 Among other things, the Amendments require that, for funds relying on those rules, any legal counsel for the independent directors of the fund be an "independent legal counsel."
120 Based on statistics compiled by Commission staff from January 1, 1997 through December 31, 1998, we estimate that there are approximately 3,560 funds that could rely on one or more of the Exemptive Rules. Of those funds, we assume that approximately 90 percent (3,200) actually rely on at least one Exemptive Rule annually.
121 We assume that the independent directors of the remaining two-thirds of those funds (2,135) will choose not to have counsel (but instead rely in some circumstances on counsel who does not represent them), so that no determination by the independent directors would be necessary.
122 This estimate is based on a staff assessment of the burden associated with this proposed recordkeeping requirement in light of the estimated hour burdens currently associated with other rules under the Act that impose similar collection of information requirements.
123 To calculate this total annual cost, the Commission staff assumed that two-thirds of the total annual industry hour burden (532 hours) would be incurred by professionals with an average hourly wage rate of $125 per hour, and one-third of that annual hour burden (267 hours) would be incurred by clerical staff with an average hourly wage rate of $15 per hour ((532 x $125/hour) + (267 x $15/hour) = $70,505).
124 The commenter argued that, using the Commission's estimate, if the 1,065 funds that make a specific determination regarding "independent legal counsel" retain separate new counsel to represent them, the "total annual cost of the Commission's proposal will exceed $26 million" (assuming the average annual retainer for each separate counsel will be $25,000). While we agree that there may be additional costs imposed by rule 0-1 if a board finds its current counsel is not independent and wishes to retain new counsel, it is also likely that the cost of new counsel would be partially offset by the lower amount of fees to be paid to prior counsel. Some boards may decide against appointing counsel. Moreover, the amended rule is different from the proposed rule, and gives the independent directors sole discretion to determine whether their counsel is independent. Thus, the overall additional costs should be far less than those suggested by the commenter.
125 This commenter suggested that there would be additional costs associated with new counsel, which would need to familiarize itself with the fund, its charter documents, its contracts, the service providers, and other information in order to effectively represent the fund's independent directors. Similarly, the commenter stated that as mergers and acquisitions of fund advisers accelerate, many fund boards will increasingly have to look to outside counsel as one of the few, if not the only, source of continuity and institutional knowledge. We agree that costs may be incurred if the independent directors retain new counsel. However, the Commission cannot predict with any certainty how often this will occur, or the fees charged by the new counsel. Moreover, as law firms experience their own mergers, acquisitions, and turnover of attorneys, new lawyers frequently must familiarize themselves with the fund and its operations. These are costs that law firms would and might pass on to funds whether or not we adopt the new rule.
The same commenter also expressed concern that the Proposing Release did not factor the costs of law firms to initially screen and thereafter continuously monitor legal work performed to ensure continued independence. Most law firms already screen and monitor any new matters for conflicts of interest. We do not believe that our rules will affect this screening and monitoring, nor do we believe law firms will have to establish new systems for the initial screening and continued monitoring of conflicts.
126 The ICI Mutual Insurance Company ("ICI Mutual"), which insures funds representing approximately 70 percent of all open-end fund assets, announced last year that it was making available to funds a standard policy endorsement that permits independent directors to recover defense costs, settlements, and judgments in "insured vs. insured" claims otherwise covered under the policy. See Proposing Release, supra note 3, at n.111. According to an ICI Mutual representative, that company is not charging funds any additional premiums for this coverage. It is possible, however, that other insurance providers might charge funds additional premiums for providing this type of coverage.
127 These conditions are designed to enable the Commission staff to monitor the duties and responsibilities of an independent audit committee formed by a fund relying on the exemption.
128 This estimate is based on statistics compiled by Commission staff from January 1, 1997 through December 31, 1998.
129 This estimate is based on a review of the estimated hour burdens currently associated with other rules under the Act that impose similar collection of information requirements.
130 To calculate this one-time cost, the Commission staff used $500 per hour as the average cost of directors' time and $125 per hour as an average hourly wage for professionals ((2 hours x 524 funds x $500/hour) + (2 hours x 524 funds x $125/hour) = $655,000).
131 This estimate is based on a review of the estimated hour burdens associated with other rules under the Act that impose similar collection of information requirements.
132 To calculate the total annual cost of the proposed rule, the Commission staff assumed that one-third of the total annual hour burden (35 hours) would be incurred by professionals with an hourly wage rate of $125 per hour, and two-thirds of that annual hour burden (70 hours) would be incurred by clerical staff with an hourly wage rate of $15 per hour ((35 x $125/hour) + (70 x $15/hour) = $5,425).
133 In some cases, funds pay these additional committee fees only if the committee meeting is held on a day when a board meeting is not scheduled.
134 We also have no basis for determining how many funds would choose to avoid those fees by scheduling audit committee meetings for the same day as a board meeting.
135 See supra Section I.E.2.
136 One commenter argued that the Commission failed to account for the costs to funds when potential and existing directors are discouraged from serving on fund boards due to the burdens of the proposed disclosure amendments. The commenter, however, failed to provide any quantifiable data to support the commenter's argument. Moreover, in tailoring the disclosure amendments to better achieve our goals, we have addressed the concerns of commenters regarding the scope of the disclosure requirements.
Another commenter noted that the Commission failed to account for the legal costs associated with increased litigation that would arise from the new disclosure requirements. Again, the commenter failed to provide any data for us to consider.
137 This estimate was based on a staff assessment of the different types of information required in proxy statements.
138 This estimate was based upon a staff assessment of the proposed amendments in light of the hour burden and reporting requirements at the time of the Proposal Release.
As stated above, the additional hours were based on the additional time funds would devote to determining what information needs to be disclosed, formulating queries for directors, and preparing the disclosure documents.
139 The estimated number of proxy statements was based on the approximate number of proxy statements filed with the Commission in calendar year 1998. The total industry cost of the proposed amendments to the proxy statement is calculated by multiplying the annual number of proxy statements (1,000) by the additional hour burden imposed by the proposed amendments (10 hours) by the hourly wage rate ($125). The hourly wage rate is based upon consultations with a sample of filers and represents the Commission's estimate for an appropriate wage rate for the legal, financial, and accounting skills commonly used in preparation of registration statements, shareholder reports, and proxy statements.
140 Our estimated hour burden would be high for those portfolios that are part of a fund complex in which multiple registered investment companies have the same board of directors because the burden of collecting and disclosing information about the common board would be spread over a larger number of portfolios.
141 Although funds only have to update the information about current directors and add information about new directors, we anticipate that funds will incur some burden hours in regularly collecting information from directors, determining what information needs to be disclosed, and preparing the updated disclosure information.
142 These estimates were based on filings received in calendar year 1998.
143 The total annual industry cost is calculated by multiplying the total annual industry hour burden ((280 portfolios x 24 hours) + (7,875 portfolios x 4 hours)) by the hourly wage rate of $125.
144 Although funds only have to update the information about current directors and add information about new directors, we anticipate that funds will incur some burden hours in regularly collecting information from directors, determining what information needs to be disclosed, and preparing the updated disclosure information.
145 These estimates were based on filings received in calendar year 1998.
146 The total annual industry cost is calculated by multiplying the total annual industry hour burden ((110 funds x 42 hours) + (20 funds x 7 hours)) by the hourly wage rate of $125.
147 Although funds would only have to update the information about current directors and add information about new directors, we anticipate that funds would incur some burden hours in regularly collecting information from directors, determining what information needs to be disclosed, and preparing the updated disclosure information.
148 These estimates were based on filings received in calendar year 1998.
149 The total annual industry cost is calculated by multiplying the total annual industry hour burden ((20 portfolios x 10.5 hours) + (40 portfolios x 1.75 hours)) by the hourly wage rate of $125.
150 This estimate was based on statistics compiled by Division staff from January 1, 1997 through December 31, 1998.
151 The industry cost of the proposed annual shareholder reporting requirements is calculated by multiplying the total annual hour burden for the industry (0.5 hours x 3,490 registered management investment companies) by the hourly wage rate of $125.
152 Commission staff surveyed representatives of several funds to determine the current burden hour estimate for rule 31a-2.
153 This estimate is based on statistics compiled by Commission staff from January 1, 1997 through December 31, 1998.
154 This estimate is based on a Commission staff assessment of the hour burden that would be imposed by the proposed amendment in light of the estimated hour burden currently imposed by the requirements of the rule.
155 In calculating the total annual industry cost of the proposed amendment, the Commission staff assumed that one-third of the total annual industry hour burden (233 hours) would be incurred by professionals with an average hourly wage rate of $125 per hour, and two-thirds of that annual hour burden (465 hours) would be incurred by clerical staff with an average hourly wage rate of $15 per hour ((233 x $125/hour) + (465 x $15/hour) = $36,100).
156 15 U.S.C. 80a-2(c), 77b(b), and 78c(f).
157 One commenter did assert that an additional 250 hours would be required to convert the new disclosure requirements into "plain English" in order for funds to obtain accurate information from directors. In light of the modifications to the disclosure requirements discussed above, which simplified the disclosure requirements, we believe that our estimates remain appropriate.
158 For example, in determining the burden hour for preparing proxy statements, we explained that the then current hour burden for preparing proxy statements was 96.2 hours per proxy statement, and we estimated that approximately 1/3 of those hours--or 32 hours--were expended collecting and disclosing information about directors and nominees. We estimated that an additional 10 burden hours per proxy statement would be imposed by the proposed disclosure requirements. This estimate was based upon a Commission staff assessment of the proposed amendments in light of the then current hour burden and current reporting requirements. We explained that the additional hours were based on the additional time funds would devote to determining what information needs to be disclosed and preparing the disclosure documents.
159 We note that since issuing the Proposing Release, the Commission issued a proposal on Disclosure of Mutual Fund After-Tax Returns, Investment Company Act Release No. 24339 (March 15, 2000) [65 FR 15500 (March 22, 2000)]. The proposal would result in an increase in burden hours of 109,591 for Form N-1A and 17,100 burden hours for rule 30e-1 due to the proposed amendments relating to after-tax disclosure.
160 These amendments require that, for funds relying on any of the Exemptive Rules, (i) independent directors constitute a majority of the fund's board of directors; (ii) independent directors select and nominate other independent directors; and (iii) any legal counsel for the independent directors be an independent legal counsel. In connection with these amendments, we also are amending rule 0-1 under the Act to add definitions of the terms "independent legal counsel" and "administrator."
161 The Commission continues to estimate that the addition of the definition of the term "independent legal counsel" to rule 0-1 will require the independent directors of approximately 1,065 funds to spend, on average, 0.75 hours annually to determine whether their counsel meets the definition of "independent legal counsel," for a total annual burden of approximately 799 hours. See Proposing Release, supra note 3, at nn.287-290 and accompanying text.
In addition, the Commission estimates that the amendments to rule 31a-2, which require funds to preserve records regarding the independence of their directors and counsel, will require approximately 3,490 investment companies to spend an additional 0.2 hours annually to comply with the collection of information requirements of rule 31a-2, for a total additional burden for all funds of approximately 698 hours. See Proposing Release, supra note 3, at nn.310-312 and accompanying text.
The Commission also estimates that new rule 32a-4, which provides an exemption from the requirement in section 32(a)(2) of the Act that the selection of a fund's independent public accountant be submitted to shareholders for ratification or rejection, will be relied upon by approximately 524 funds, for a total one-time burden of 2,096 hours and an additional annual hour burden of 105 hours. See Proposing Release, supra note 3, at nn.313-314 and accompanying text.
162 In connection with the adoption of this requirement, we also are defining the term "independent legal counsel."
163 We note that few, if any, insurance company separate accounts registered on Form N-3 have assets of less than $50 million when separate account assets are aggregated with the assets of the sponsoring insurance company.
164 See supra note 157 and accompanying text.
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