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OUTLINE OF COMMENTS ON PROPOSED RULES REGARDING THE ROLE OF
August 9, 2000 S7-23-99 Prepared by: Kimberly Browning
TABLE OF CONTENTS II. Enhancing the Independence of Independent Directors IV. Rule 32a-4 - Independent Audit Committees 1. Disclosure of Aggregate Ownership in Fund Complex D. Board's Role in Fund Governance VIII. Cost-Benefit and Paperwork Reduction Act Analyses
LIST OF COMMENTERS
OUTLINE OF COMMENTS ON
On October 14, 1999, the Securities and Exchange Commission (the "Commission") issued a release proposing new rules and rule amendments designed to enhance the effectiveness of investment company ("fund") independent directors and to better enable investors to assess the independence of fund directors. The comment period closed on January 28, 2000. The Commission received 142 comment letters,1 86 of which were from independent directors.2 The following outline summarizes the commenters' general views. Commenters generally commended the Commission for its commitment to enhancing the independence and effectiveness of fund directors as outlined in the Commission's proposal. However, six commenters (including two law firms, two independent directors, and one independent director/shareholder activist) opposed the Commission's proposal.3 Three opponents argued that the Commission was not addressing the underlying problem of a lack of genuine director independence.4 Two opponents argued that the proposal imposed significant burdens on independent directors while doing little to enhance their independence.5 Another commenter added that the proposal may exceed the Commission's rulemaking authority.6 A. Amending the Exemptive Rules SUMMARY: The Commission proposed to amend ten rules under the Investment Company Act (the "Exemptive Rules").7 The proposal would require that, for funds relying on the Exemptive Rules: (i) independent directors constitute at least a majority of the board; (ii) independent directors select and nominate other independent directors; and (iii) any legal counsel for the independent directors be an independent legal counsel. The ICI stated that it accepts the Commission's approach of tying reliance on the Exemptive Rules to compliance with the proposed independence-enhancing conditions (majority independent board, self-selection and self-nomination, and independent legal counsel).8 Seven commenters, however, argued that amending the Exemptive Rules is not appropriate.9 Three of these commenters stated that tying the proposed conditions to the Exemptive Rules in essence would require all funds to follow the conditions and that the Commission should instead recommend legislative changes to Congress.10 SUMMARY: The proposed disclosure amendments would require funds to: (i) provide basic information about directors to shareholders annually so that shareholders will know the identity and experience of their representatives; (ii) disclose to shareholders fund shares owned by directors to help shareholders evaluate whether directors' interests are aligned with their own; (iii) disclose to shareholders information about directors that may raise conflict of interest concerns; and (iv) provide information to shareholders on the board's role in governing the fund. Forty-four commenters provided general comments regarding the proposed disclosure amendments. Two commenters supported the enhanced disclosure requirements, stating that they would protect shareholder interests and help plan fiduciaries to assess the true independence of directors.11 Twenty-one commenters supported the proposal and/or its goals with recommended revisions.12 These commenters supported the general proposition that requiring enhanced disclosures about fund directors would be beneficial to shareholders. Twenty-one commenters generally opposed the proposed disclosure amendments as unnecessary, overbroad, or as imposing burdens outweighing their benefits. 13 SUMMARY: The ICI organized an Advisory Group on Best Practices for Fund Directors, which issued a report of recommended fund governance best practices in June 1999. The Commission requested comment whether it should amend its rules to require funds to follow some or all of the ICI's best practices. The ICI and two other commenters generally stated that the Commission made the correct judgment as to which best practices recommendations are appropriate as regulatory requirements.14 One commenter, however, urged the Commission also to require term limits for all fund boards, as recommended in the ICI's Best Practices Report.15 II. ENHANCING THE INDEPENDENCE OF INDEPENDENT DIRECTORS 1. Independent Directors As Majority of the Board SUMMARY: The Commission proposed to amend the Exemptive Rules to require that, for funds relying on those rules, either (i) a simple majority or (ii) a two-thirds supermajority of the directors be independent directors. The Commission requested comment on the appropriate independence standard. The Commission also requested comment whether it should adopt an even higher percentage of independent directors and asked for information regarding supermajority provisions in fund charters. Nearly all commenters who addressed increasing the percentage of independent directors on fund boards supported the proposal. Only two commenters opposed increasing the percentage of independent directors,16 while four commenters criticized the Commission's proposal to tie the increased independence condition to the Exemptive Rules.17 The 23 independent directors who commented on the appropriate director independence standard were nearly evenly divided between those supporting a simple majority and those supporting a two-thirds supermajority. Twelve advocated a simple majority,18 while 11 advocated a two-thirds supermajority.19 Eighteen other commenters addressed the issue. Twelve (including the ABA, the ICI, and seven fund management organizations) recommended a simple majority standard,20 while five recommended a two-thirds supermajority standard.21 Commenters supporting a simple majority standard generally argued that a simple majority enables independent directors to control board votes, but also allows fund boards the flexibility to establish their own appropriate percentage of independent directors, above a simple majority.22 Most commenters supporting a supermajority of independent directors stated that they already have a supermajority and found that the practice is not unduly burdensome. Four commenters supported a larger percentage of independent directors than the Commission proposed,23 and three of these recommended an independence standard of 7524 or even 100 percent.25 The Commission requested comment on supermajority voting provisions in fund constitutional documents that could undercut the effectiveness of the proposed increased percentage of independent directors. One commenter stated that the Commission could counter the problem of supermajority provisions by re-phrasing the independence standard as at least two-thirds of the fund's board, or "such higher fraction as is necessary under the fund's constituent documents to enable the independent directors, acting together, to act on any matter subject to board action."26 The proposing release states that if the Commission adopts a new majority independence standard, it expects to delay the compliance date for one year to allow funds to conform their boards to the new standard. The Commission requested comment on this one-year transition period. Commenters who commented recommended longer transition periods ranging from one year after a fund's next fiscal year end (after the adoption of the amendments),27 to two years from the date the Commission adopts amendments.28 2. Temporary Suspension Of Board Composition Requirements SUMMARY: The Commission proposed new rule 10e-1 under the Act. Rule 10e-1 would suspend the board composition requirements of the Act (and of the rules under the Act) following the death, disqualification, or bona fide resignation of a director. The proposed rule would suspend the board composition requirements for 60 days if the board of directors may fill a vacancy or 150 days if a shareholder vote is required. Currently, the Act provides for 30-day and 60-day suspension periods. The Commission requested comment whether the proposed suspension periods are adequate to provide funds and their independent directors with the time needed to approve new independent directors. All commenters who commented favored the rule, although 21 commenters urged the Commission to extend the time periods included in proposed rule 10e-1. The most commonly recommended periods were 120 days, when a shareholder vote is not required, and 240 days, when a shareholder vote is required.29 Commenters noted that the 120-day and 240-day periods correspond with the typical quarterly cycle of board meetings and generally would enable fund boards to fill vacancies without calling a special meeting of the board.30 Three commenters also requested that the Commission's adopting release clarify that the time periods under rule 10e-1 would begin to run when a fund becomes aware of a director's disqualification.31 B. Self-Selection and Self-Nomination SUMMARY: The Commission proposed to amend the Exemptive Rules to require that the independent directors of funds relying on those rules select and nominate any other independent directors. Commenters strongly supported the Commission's proposal regarding the self-selection and self-nomination of independent directors. Twenty-eight commenters expressly endorsed the practice.32 Most of these commenters stated that they currently rely on rule 12b-1 and therefore already require independent directors to select and nominate other independent directors.33 Only two commenters opposed the Commission's self-selection and self-nomination proposal.34 Some of the commenters who supported the self-selection and self-nomination proposal urged that the Commission's adopting release clarify that the proposal does not preclude independent directors from soliciting input from the fund's adviser and its affiliates regarding the selection and nomination of independent directors.35 SUMMARY: The Commission proposed to amend the Exemptive Rules to require that, for funds relying on those rules, any person who acts as legal counsel to a fund's independent directors be an independent legal counsel. The Commission proposed to define "independent legal counsel" as any person who meets either of two criteria: (i) a fund reasonably believes that the person has not acted as legal counsel for the fund's investment adviser, principal underwriter, administrator (collectively, "management organizations"), or any of their control persons at any time since the beginning of the fund's last two completed fiscal years; or (ii) a majority of the independent directors determine (and record the basis for that determination in the minutes of their meeting) that the person's representation of any of the fund's management organizations or any of their control persons is or was so limited that it would not adversely affect the person's ability to provide impartial, objective and unbiased legal counsel to the independent directors. The independent legal counsel proposal drew a large number of comments, including comments from three bar associations,36 nine law firms,37 and two attorneys.38 Two recurring themes predominated the independent counsel comments. First, 43 commenters (including 27 independent directors) stated that the advice of an independent legal counsel is useful and important to fund independent directors.39 However, 50 commenters (including 34 independent directors) argued that selection of independent counsel is an issue best left to the independent directors themselves.40 Most of these commenters viewed the Commission's proposal as regulatory interference with independent directors' ability to select counsel.41 In addition, 24 commenters (including 14 independent directors) were concerned that the Commission's proposal would require independent directors to terminate existing relationships with counsel.42 Three commenters, however, stated that the Commission's independent counsel proposal would serve fund shareholders well.43 1. Discretion of the Independent Directors Many commenters argued that independent directors are sophisticated, experienced individuals who are capable of choosing their own counsel. Thirty-four commenters stated that Congress and the Commission have entrusted independent directors with important responsibilities to monitor conflicts and protect shareholder interests, and that the Commission therefore should trust independent directors to select their own counsel.44 Nine commenters (including six independent directors) noted that selection of counsel is a personal and sensitive decision and argued that the Commission should not interfere.45 Finally, seven commenters emphasized that independent directors should assess the qualifications of counsel, in addition to the counsel's independence.46 Under the Commission's proposed definition, a person would qualify as an independent legal counsel if the person had not acted as legal counsel for a fund's management organizations or their control persons in the past two years, or if the fund's independent directors determine that any representation of any management organization or a control person was so limited that it would not adversely affect the counsel's ability to provide impartial advice. Many commenters stated that the criteria contained in the Commission's proposed definition of independent legal counsel were not sufficiently flexible. Twenty argued that the second prong of the definition allowing independent directors to waive conflicts was too restrictive,47 and 20 argued that the definition would so limit the pool of eligible counsel that some independent directors may have difficulty obtaining appropriate legal advice.48 Seventeen commenters also expressed concern that the "strict" definition of independence in the Commission's proposal might actually discourage independent directors from seeking their own counsel.49 Finally, 18 commenters (including the ABA, the ICI, and ten independent directors) stated that the establishment of a substantive standard of counsel independence in a Commission rule would subject funds and their independent directors to second-guessing and litigation over the independent directors' choice of counsel.50 Twenty-eight commenters stated that increasing consolidation within the financial services industry and among law firms makes the Commission's proposal unworkable.51 These commenters noted that, under the proposal, an attorney could be disqualified from representing a fund's independent directors because of a merger of law firms or financial services companies. The commenters also noted that a likely outgrowth of the Gramm-Leach-Bliley Act is increasing consolidation of banks, securities firms, and insurance companies. Twenty-three commenters (including the NYC Bar, the Philadelphia Bar, the ICI, and twelve independent directors) argued that current state bar rules of professional conduct are effective in ensuring independence of counsel and that the Commission's proposal therefore is not necessary.52 In connection with this point, 20 commenters, including 10 independent directors, observed that the Commission's proposing release did not cite any problems or abuses associated with the current system of legal representation.53 Four commenters (including the Philadelphia Bar and two law firms) stated that the independent legal counsel proposal would in effect amend the rules of professional conduct, an area in which the Commission has no particular expertise.54 Two commenters also questioned the Commission's authority in this area.55 4. Sub-Advisers and Administrators Fifteen commenters, including 11 independent directors, stated that the Commission's proposal creates difficulties for funds with many sub-advisers because most qualified law firms will have performed work for one or more sub-advisers or their affiliates.56 In addition, five commenters noted that the proposal is particularly difficult for funds that operate under a manager-of-managers exemptive order.57 Commenters also stated that the relationship between a fund and its sub-adviser is more attenuated than the fund's relationship with its adviser and therefore does not present the same level of conflicts. One fund management organization with multiple sub-advisers recommended that the Commission exempt fund groups relying on a manager-of-managers order from application of the independent legal counsel definition, or exclude sub-advisers from the list of management organizations in the rule.58 Other commenters suggested that the Commission eliminate "administrator" from the list of management organizations59 or revise the definition of administrator to exclude organizations that provide transfer agency, custody, and fund accounting services.60 These commenters asserted that, based on the limited nature of the services provided by an administrator, there is limited risk of potential conflict of interest between a fund and its administrator.61 Fourteen commenters (including six commenters representing relatively small fund organizations) noted that the independent legal counsel proposal could impose substantial costs on funds and that those costs could be especially difficult for small funds to absorb.62 One commenter argued that cost is not a relevant consideration in view of the benefit to shareholders of an independent counsel.63 Many commenters noted that the costs imposed by the proposal would include the costs associated with searching for counsel as well as the costs related to that counsel "coming up to speed."64 6. Requiring Counsel for the Independent Directors The Commission's proposal would not require that independent directors retain their own counsel, but only that any person who acts as counsel to the independent directors be "independent." The Commission requested comment on whether the rules should require independent directors to retain counsel. Commenters were evenly divided. Five commenters (including four independent directors) recommended that the Commission require that independent directors have separate counsel.65 Five other commenters (including two independent directors) argued that directors should determine for themselves whether they need counsel, and the Commission should not require counsel.66 Two commenters stated that it would be anomalous for the Commission to impose substantive restrictions on the counsel that independent directors select, but not require independent directors to obtain counsel.67 7. Alternative Legal Counsel Proposals Any counsel who has not acted as legal counsel for a fund's management organizations or their control persons in the past two years would be an "independent legal counsel" under the first prong of the Commission's proposed definition. Under the second prong, the independent directors could determine that counsel was an independent legal counsel if any conflicts the counsel has are "so limited" that, in the judgment of the independent directors, counsel can provide impartial advice (and the independent directors record the basis for this determination in the fund's board minutes). Seventeen commenters (including the ABA, the ICI, and nine independent directors) recommended that the rules require independent directors to consider a counsel's conflicts and determine that the counsel is able to render impartial advice, without determining whether the conflicts are "limited."68 Most of these commenters agreed that the independent directors' findings should be reflected in the board minutes, and some suggested that as part of the process, independent directors could determine whether retention of independent counsel would be in the best interests of the fund and its shareholders. The ABA, in its comment letter, proposed to appoint a task force to prepare a report providing guidance to independent directors in the selection of counsel. This guidance would include suggested factors the directors may consider regarding the qualification of counsel, including an evaluation of the nature of any relationships counsel may have with a fund's service providers. Other commenters suggested various alternatives, such as (i) having a lawyer serve as an independent director69 and (ii) issuing an interpretive release strongly recommending that independent directors discuss counsel conflicts and record their discussions in board minutes.70 III. JOINT INSURANCE
Twelve commenters supported the Commission's proposal to amend rule 17d-1(d)(7) to prohibit joint insurance policies from containing insured-versus-insured exclusions.71 Only two commenters opposed the proposal, arguing that the determination as to the need for specific policy features or the total amount of coverage desired should be left to the discretion of the independent directors in consultation with their counsel and any co-insureds.72 The Commission requested comment on whether it should further amend rule 17d-1(d)(7) to require that joint insurance policies purchased under the rule be in "an amount adequate to ensure that independent directors can perform their duties in an independent and effective manner," as recommended by the ICI's Best Practices Report. Six commenters stated that they did not support further amending the rule.73 In addition, two commenters suggested that the proposal did not go far enough in addressing issues related to joint insurance policies.74 IV. RULE 32a-4 - INDEPENDENT AUDIT COMMITTEES SUMMARY: The Commission proposed to exempt funds from the Act's requirement that shareholders ratify or reject the selection of the fund's independent public accountant if the fund has an audit committee consisting wholly of independent directors. The Commission proposed that in order for a fund to rely on the proposed exemption, (i) the audit committee must be responsible for overseeing the fund's accounting and auditing processes, (ii) the fund's board of directors must adopt an audit committee charter setting forth the committee's structure, duties, powers, and methods of operation, and (iii) the fund must maintain a copy of the charter. Eighteen commenters generally supported the proposal.75 Only one commenter opposed the proposal.76 Several commenters requested clarification that the phrase "overseeing the fund's accounting and auditing process" in proposed rule 32a-4 would not require the audit committee to directly supervise a fund's day-to-day management and operations.77 In response to the Commission's request for comment, commenters did not support imposing additional conditions to rule 32a-478 such as requiring the filing and review of the audit committee charter.79 SUMMARY: The Commission proposed a new rule 2a19-3 that would conditionally exempt an individual from being disqualified as an independent director merely because he or she owns shares of an index fund that invests in the adviser or underwriter of the fund, or their controlling persons. The proposed exemption would be available if the value of the securities issued by the adviser or underwriter (or controlling person) does not exceed five percent of the value of any index tracked by the index fund. Five commenters supported the proposed rule.80 Six commenters opposed the proposal, objecting in particular to the premise that an independent director's ownership of index fund shares might result in a beneficial interest in the fund's underlying portfolio of securities, or raise issues as to a director's independence.81 Six commenters requested that the Commission expand the proposal by stating in the adopting release that a director's ownership of shares in any management investment company (actively managed or index) does not raise an issue of independence regardless of the fund's portfolio securities.82 One commenter also asked for relief regarding ownership of an adviser's securities.83
SUMMARY: The proposal would require funds to disclose basic information about directors in an easy-to-read tabular format. The proposal would combine in one table certain information currently required for directors in the SAI and proxy statements.
SUMMARY: The new table containing basic information would be required in three places: the fund's annual report to shareholders, SAI, and proxy statement for the election of directors. Basic information about directors would not be included in the prospectus. Eleven commenters supported disclosures about directors in the annual report, agreeing with the Commission that shareholders were not receiving background information about directors on an annual basis and preferring the annual report to the prospectus to provide such background information.86 Seven commenters opposed such disclosures in the annual report, arguing that investors are more interested in fund performance information in the annual report.87 One commenter recommended that the Commission defer any decisions regarding annual report disclosure and consider this as part of its proposed overall review of shareholder reports.88 Nine commenters supported the proposal to require disclosure of basic information in the SAI and proxy statements.89 Two commenters believed that disclosure of basic information in both the SAI and annual report was unnecessary.90 One of the two commenters recommended that the basic information about directors appear only in the annual report since investors are more likely to review that document.91 Twelve commenters supported the proposal not to include disclosures about directors in the prospectus for the reasons stated in the Commission's proposal.92 Only one commenter argued that basic information about directors should be included in the prospectus because both the proxy statement and the annual report are poor substitutes for prospectus disclosure.93 Four commenters supported the proposed requirement to provide directors' information in a tabular format.94 Two commenters opposed the proposal, questioning the usefulness of the tabular format for investors and whether the smaller size of the annual reports would accommodate a table.95 One commenter suggested that funds be permitted to use not only a tabular format but any other format that fosters clear and concise disclosure to shareholders. This commenter also noted that fund reports are produced in different sizes, some of which may not readily accommodate the tabular format the Commission proposed.96 SUMMARY: The proposed table would require for each director: (i) name, address, and age; (ii) current positions held with the fund; (iii) term of office and length of time served; (iv) principal occupations during the past five years; (v) number of portfolios overseen within the fund complex; and (vi) other directorships held outside of the fund complex. As currently required in proxy statements, the table also would require for each "interested" director, as defined in section 2(a)(19) of the Act, a description of the relationship, events, or transactions by reason of which the director is an interested person. a. Name, Address and Age One commenter specifically supported the required disclosure of name, address, and age of the directors.97 Three commenters expressed concerns about the disclosure of directors' addresses because of the potential loss of privacy from disclosure of directors' personal addresses.98 b. Principal Occupations One commenter suggested that the annual report contain information about a director's current principal occupations rather than his principal occupations during the past five years, as proposed. 99 c. Number of Portfolios Overseen Four commenters specifically supported the Commission's proposal to disclose the number of portfolios each director oversees in the fund complex.100 Three of the commenters explained that this disclosure would provide a more accurate picture of the scope of each director's responsibilities.101 d. Reasons Why Interested Director Is "Interested" One commenter supported the proposal to disclose in annual reports and proxy statements the reasons why a director is deemed to be an "interested" person under the Act (as is required under the current proxy rules).102 Nine commenters opposed as unnecessary the requirement to describe in the table the relationships, events, or transactions that make certain directors "interested persons."103 One commenter recommended that instead of requiring disclosure of why a person is "interested," the Commission should require a general, plain English definition of an interested person in the SAI.104 For example, "the term `interested person' generally means any person who has a professional or business relationship with the fund, its investment adviser or principal underwriter that legally excludes that person from being considered an independent director." Finally, one commenter recommended that annual report disclosure not include an explanation of why a director is an "interested" director, but had no objections to including such an explanation in the SAI.105 e. Annual Disclosure One commenter expressed doubt that basic information about directors would be useful on an annual basis.106 SUMMARY: The proposed amendments would require disclosure of the aggregate dollar amount of equity securities of funds in the fund complex owned beneficially and of record by each director. Funds would provide information on director holdings in an easy-to-read tabular format including: (i) name of director; (ii) identity of fund complex; and (iii) aggregate dollar amount of equity securities owned of funds in the complex. The information, as of the most recent practicable date, would be provided in the fund's SAI and in any proxy statement relating to the election of directors. Seventy-eight commenters addressed the fund ownership disclosure proposal. Twenty-five commenters generally supported increased fund ownership disclosure,107 agreeing that these disclosures are necessary to reveal whether a director's financial interests are aligned with those of shareholders and that shareholders are entitled to know whether a director holds shares in the fund complex. Twenty-six commenters generally opposed the additional fund ownership disclosures as proposed by the Commission.108 These commenters generally argued that the fund ownership disclosure proposal would: (i) discourage director investment in the fund complex; (ii) discourage potential directors from agreeing to serve; (iii) require information that has limited relevance to investors; and (iv) intrude into the privacy of directors. 1. Disclosure of Aggregate Ownership in Fund Complex a. Fund Complex, Fund-by-Fund, or Fund Groups Thirty-two commenters discussed the Commission's proposal to require fund ownership disclosure on a complex-wide basis. Twenty-three of the 32 commenters recommended disclosure of a director's ownership in the fund complex, rather than fund-by-fund. 109 Commenters noted that complex-wide disclosure is preferable since investment objectives may vary among directors. However, seven of these commenters recommended that the Commission use the Form N-SAR definition of "family of investment companies," rather than the proxy definition of "fund complex" as proposed, for determining fund ownership by complex. 110 Five commenters recommended disclosure of a director's ownership on a fund-by-fund basis rather than a complex-wide basis. 111 These commenters argued that it would be more relevant to disclose share ownership of the fund(s) on whose board the director serves. Another commenter favored fund-by-fund disclosure, but recommended that the Commission require disclosure in the aggregate for all of the directors for each fund.112 Three commenters recommended disclosure of a director's holding in the group of funds the director serves.113 These commenters believed that this level of disclosure was sufficient for investors to assess whether a director's interests were aligned with their own. Two commenters suggested that the Commission require disclosure in the aggregate for all of the directors' holdings in the group of funds for which they serve.114 One commenter suggested that the Commission allow funds the option of providing disclosure of directors' investment in a single fund rather than the entire complex.115 Another commenter suggested that the Commission limit fund share ownership disclosure to funds covered by the proxy statement or SAI.116 b. Specific Dollar Amount of Fund Ownership Forty-six commenters discussed the proposal to require fund ownership disclosure in specific dollar amounts. Seven commenters supported the proposal to disclose the specific dollar amount of shares owned.117 Thirty-nine commenters opposed disclosure of the specific dollar amount of shares owned.118 Concerns expressed by commenters included:
Commenters recommended alternative methods of disclosing the amount of fund ownership. Twenty-eight commenters recommended that the Commission require disclosures of shares owned in dollar ranges rather than exact amounts.119 Fifteen commenters recommended that the Commission require disclosure of a threshold dollar amount or an amount that is a function of the amount paid to the director for serving on the board.120 Nine commenters recommended that funds disclose whether or not a director holds securities in the fund complex rather than how much he or she holds.121 One commenter recommended disclosure of the number of shares owned rather than the exact dollar value.122
2. Alternative Methods of Disclosing Fund Ownership In addition to the alternative methods of fund ownership disclosure discussed above, commenters recommended the following alternatives to the Commission's proposal on fund ownership disclosure:
Two commenters recommended that share ownership should speak as of a specific annual date and not have to be updated throughout the year.128 One commenter stated that fund ownership disclosure should be included in the proposed table in the annual report and not just in the SAI and proxy statements.129 SUMMARY: The proposed amendments would improve the disclosure of information about circumstances involving directors that raise conflicts of interest concerns. The proposal would require disclosure of three types of circumstances that could affect the allegiance of fund directors to their shareholders: positions, interests, and transactions and relationships of directors. The proposal would require disclosure in the proxy statement and SAI of potential conflicts of interest involving fund directors and their immediate family members, including: (i) positions held with the fund and persons related to the fund; (ii) material interests, including securities holdings in entities related to the fund; (iii) material transactions and relationships with the fund and persons related to the fund; and (iv) cross-directorships. One hundred nine commenters addressed the conflicts of interest proposal. Two commenters supported the conflicts of interest disclosures as proposed by the Commission.130 One of these commenters recommended that similar disclosure be required of fund counsel.131 Three commenters indicated that they would support the Commission's proposal if certain revisions were made.132 Forty-four commenters expressed general concerns about the conflicts of interest disclosures as proposed by the Commission.133 Concerns expressed by the commenters included: (i) the increased burdens on funds, directors, and their immediate family members; (ii) the likelihood that increased burdens would deter potential candidates from serving on fund boards; and (iii) the usefulness and/or relevance of the required information to investors. Commenters offered a number of alternatives to the Commission's conflicts of interest disclosure proposal. Fifteen commenters suggested that the Commission require funds to maintain records containing the information regarding potential conflicts of interest instead of requiring funds to publicly disclose such information.134 Thirteen commenters suggested that the Commission allow independent directors to determine among themselves whether or not conflicts of interest exist to affect the "independence" of other independent directors.135 Two commenters suggested that disclosure of conflicts be limited to the current proxy statement requirements.136 One commenter suggested that the Commission require funds to make non-public filings of conflicts of interest information.137 Another commenter suggested that the proposal exclude disclosure of the positions, interests, and transactions and relationships of the director and his immediate family members where the director reasonably has no awareness of a conflict.138 1. Persons Covered by Disclosure Requirements a. Interested Directors SUMMARY: The proposal followed the approach taken in the current proxy rules and required conflicts of interest disclosures about all directors, both interested and independent. Sixteen commenters addressed the proposal to apply disclosure requirements to interested directors.139 All 16 commenters opposed applying disclosure requirements to interested directors, arguing that the reason a director is interested is not necessary or useful information for investors. b. Immediate Family Members SUMMARY: The proposal would extend the disclosure requirements to the immediate family members of directors. The proposal defined "immediate family members" to mean any spouse, parent, child, sibling, mother- or father-in-law, son- or daughter-in-law, or sister- or brother-in-law, including step and adoptive relationships. One hundred four commenters specifically addressed the extension of disclosure requirements to immediate family members. (1) Proposed Expansion of Immediate Family Member Too Burdensome Eighty-four of the 104 commenters stated that the proposed expansion of conflicts of interest disclosure to include a director's "immediate family" was too burdensome.140 Concerns expressed by the commenters included:
(2) Definition Is Too Broad Ninety-three of the 104 commenters stated that the definition of "immediate family members" was overly broad.141 Commenters generally expressed concerns that the proposal includes family relationships that are too remote or distant to provide useful information for fund shareholders and therefore would unreasonably require directors to inquire into dealings of family members with whom they have little contact and/or strained relationships. (3) Information Required Is Irrelevant or Unnecessary Thirty-five of the 104 commenters stated that the information required is irrelevant or unnecessary.142 Commenters expressed the view that: (i) directors already have fiduciary obligations to shareholders; (ii) shareholders may misconstrue or mischaracterize the matters disclosed; (iii) the required information is not significantly beneficial or material to a shareholder or prospective shareholder; and (iv) the proposal does not cover other relationships or situations that would arguably be equally or more relevant. (4) Recommendations to Limit the Scope of Disclosure Thirty-five commenters suggested limiting "immediate family members" to those living in the same household.143 In this regard, the commenters specifically recommended limiting "immediate family members" to:
Nineteen commenters suggested restricting "immediate family members" to the same household, as well as dependents or adult children outside of the household.144 In this regard, the commenters recommended that "immediate family members" be limited to:
Two commenters suggested restricting "immediate family members" to the spouse and children of the director.145 Fifteen commenters suggested restricting "immediate family members" to those family members about whom the director possesses personal knowledge of potential conflicts of interest.146 Three of the 15 commenters recommended the personal knowledge standard only if the broad definition of "immediate family members" is used.147 Seven commenters suggested other modifications to the definition of "immediate family member," including:148
c. Related Persons SUMMARY: The proposal would require disclosure about circumstances involving directors and their immediate family members, on the one hand, and the fund and persons related to the fund, on the other. The Commission's statutory authority to determine that a director is an "interested person" is based on finding a relationship with: (i) the fund; (ii) the fund's investment adviser, principal underwriter, or a person controlling the investment adviser or principal underwriter; (iii) another investment company with the same investment adviser or principal underwriter; or (iv) the principal executive officer of the fund, its investment adviser or principal underwriter, or another investment company with the same investment adviser or principal underwriter. The Commission's proposal would require disclosure with respect to circumstances involving these persons and other persons that the Commission concluded may pose similar conflicts of interest.149 Twenty-one commenters addressed this portion of the proposal.150 Commenters generally argued that current requirements in the proxy rules are sufficient and that any expansion of "related persons" would be burdensome. Commenters also stated that the entities with respect to which disclosure would be required are too broad.151 Commenters expressed concerns that because of the broad scope of the proposal, the information required would be difficult to obtain and not material to shareholders. Commenters made the following recommendations to narrow the proposal:
2. Other Conflicts-Related Disclosure Issues a. Materiality Twenty-three commenters found the term "material" too vague and recommended that the Commission define "material" by establishing a specific dollar threshold that would trigger the disclosure requirements or by expanding the exceptions.157 Commenters' recommendations included:
b. Cross-Directorships SUMMARY: The proposal would require a fund to disclose situations where an officer of an investment adviser, principal underwriter, or administrator of a fund, or an officer of a person directly or indirectly controlling, controlled by, or under common control with an investment adviser, principal underwriter, or administrator of the fund serves, or has served since the beginning of the last two completed fiscal years of the fund, as a director of a company of which a fund director or his immediate family member is, or was, an officer. Five commenters suggested the following revisions to the proposed disclosure requirements regarding cross-directorships:166
c. Time Periods SUMMARY: The proposal requested comments on the appropriate time period to be covered by the information concerning positions, interests, transactions, and relationships of directors and their immediate family members with the fund and related parties. Ten commenters responded to the request for comments. Eight commenters recommended that the Commission limit disclosure to a two-year period since it is consistent with the time limit for material business or professional relationships in the Act.172 Three commenters suggested that the Commission limit disclosure to the two most recently completed calendar years instead of fiscal years.173 For fund boards that serve multiple funds with staggered fiscal-year-ends, a fiscal-year time period would require funds to obtain updated information from their directors as frequently as monthly. d. Miscellaneous One commenter suggested that the Commission should simply require an adviser to state in its proxy statement and/or SAI that "neither it nor affiliates of it at its direction have offered business opportunities to the independent directors or persons known to be immediate family members or entities known to be controlled by any such persons."174 Six commenters stated that the Commission should not require in the proxy statement or SAI disclosure of transactions and relationships where there is no "special treatment."175 Two commenters suggested that the Commission require disclosure of transactions and relationships with principal executive officers only, and not all officers who perform policy-making functions.176 Two commenters recommended that the proposal be revised to provide relief for directors who have securities in 401(k) plans and other retirement vehicles.177 D. Board's Role in Fund Governance SUMMARY: The proposal would modify disclosure of matters related to the board's role in governing a fund currently required in the proxy rules and the SAI. The proposal would require a fund to disclose in the SAI in reasonable detail the material factors and conclusions that formed the basis for the board of directors' recommendation that the shareholders approve an investment advisory contract, including a discussion of any benefits derived or to be derived by the investment adviser from the relationship with the fund. The proposal would also modify disclosure in the proxy statement and the SAI relating to a fund's committees of the board of directors. The proposal would require a fund to identify each standing committee of the board in the SAI and proxy statements for the election of directors. A fund would be required to provide a concise statement of the functions of each committee; identify the members of the committee; indicate the number of committee meetings held during the last fiscal year; and state whether its nominating committee will consider nominees recommended by fund shareholders and, if so, describe the procedures for submitting recommendations. Twenty-three commenters discussed the proposal requiring disclosure of the material factors and conclusions that formed the basis for the board's recommendation that shareholders approve an advisory contract. One commenter generally expressed its support for this proposal,178 while twenty-two commenters opposed it.179 The commenters opposing this proposal expressed concerns that funds would rely upon "boilerplate" disclosure in response to this item to avoid potential liability, resulting in responses that would be irrelevant to investment making decisions. Commenters noted that the specific factors considered in approving an advisory agreement are appropriately disclosed in the proxy statement when shareholders are asked to approve the advisory agreement. The same reasoning would not apply to disclosures in the SAI since it is designed to communicate more general information about the persons who govern the fund and the fund's governing structure. Four commenters supported identifying and describing the standing committees of the board.180 One of these commenters also recommended disclosing whether a fund has an investment committee.181 One commenter opposed identifying and describing the standing committees of the board as such information would be of little interest to investors.182 SUMMARY: The proposal would require funds to present all disclosure for independent directors separately from disclosure for interested directors in the SAI, proxy statements for the election of directors, and annual report to shareholders. Nine commenters addressed the proposal requiring physically separate disclosure of information about interested and independent directors. One commenter supported physically separate disclosures.183 Eight commenters opposed the Commission's proposal.184 The commenters argued that the proposal would only serve to confuse shareholders and unnecessarily overemphasize the differences between independent and interested directors for no apparent reason. F. Technical and Conforming Amendments SUMMARY: The Commission proposed amendments to its schedules and rules to conform them to current requirements, and to conform them to various changes proposed in the release. Three commenters addressed one portion of these proposed changes that would require funds to provide in the SAI "a brief description of any arrangement or understanding between a director or officer and any other person pursuant to which he was selected as a director or officer." Two of these commenters recommended deleting such a requirement from the proxy rules and not requiring such disclosure in the SAI, at the very least for funds whose independent directors are self-nominated.185 The third commenter stated that the Commission's language in the proposal was extremely broad and recommended that the Commission narrow it.186 SUMMARY: The proposal would require all new registration statements and post-effective amendments that are annual updates to effective registration statements, proxy statements for the election of directors, and reports to shareholders filed on or after the effective date of the amendments, to comply with the proposed amendments. Six commenters addressed the compliance date. Five commenters recommended a transition period of one year after which annual reports, new registration statements, post-effective amendments that are annual updates, and proxy statements filed would have to comply with the new requirements.187 One commenter recommended that the effective date for disclosure requirements be for fiscal years ending on or after January 1, 2001.188 Two commenters requested clarification that any changes to disclosure requirements resulting from these proposed rules may be made in filings under Rule 485(b).189 SUMMARY: The Commission proposed to require funds to preserve for six years, the first two years in an easily accessible place, any documents used in the initial and subsequent determinations that a director is an independent director. The three commenters who commented supported the proposal.190 One of these commenters recommended that the Commission also require boards to determine the independent status of each independent director on an annual basis, and that funds be required to make and keep records of those determinations.191 VIII. COST-BENEFIT AND PAPERWORK REDUCTION ACT ANALYSES SUMMARY: The proposal provided the Commission's estimates of the cost and hour burdens for funds to comply with the proposed rule amendments. Six commenters specifically addressed the Commission's estimates.192 The commenters generally argued that the proposing release underestimated the number of hours to be incurred in connection with the proposed amendments. Footnotes1 The Commission received 54 comment letters from groups of independent directors, 32 comment letters from individual independent directors, 18 comment letters from fund management organizations, 14 comment letters from law firms and attorneys, 9 comment letters from entire boards of directors, 7 comment letters from professional and trade associations, 1 comment letter from a fund, and 7 comment letters from other commenters. 2 This outline of comments uses the term "independent director" for commenters who are individual independent directors as well as commenters representing all of the independent directors of a fund group. Letters signed by more than one director are counted as a single letter. See, e.g., Alliance Ind. Dirs. 3 Federated Ind. Dirs., P. Goldstein (ind. dir.), Hibernia Ind. Dirs., G. Karpus, Sullivan & Cromwell, Wechsler Harwood. 4 P. Goldstein (ind. dir.), G. Karpus, Wechsler Harwood. 5 Federated Ind. Dirs., Hibernia Ind. Dirs. 6 Ropes & Gray. Similarly, Sullivan & Cromwell stated that the proposal was "out of character" with the Commission's regulatory precedent. 7 The Exemptive Rules exempt funds or their affiliated persons from provisions of the Investment Company Act of 1940 ("Act"), and condition relief on the approval or oversight of independent directors. They include the following: 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 (permitting fund boards to approve interim advisory contracts without shareholder approval); 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 fidelity 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). 8 L. Corsell, Federated and the ICI recommended that the Commission exclude rule 15a-4 (permitting fund boards to approve interim advisory contracts without shareholder approval) from the proposal. The ICI argued that funds rely on rule 15a-4 only in non-routine, and even unforeseeable, circumstances (i.e., when an advisory contract terminates), as opposed to the other Exemptive Rules, which concern ongoing business practices. L. Corsell argued that if rule 15a-4 prohibits a fund from entering into an interim advisory contract unless it has a majority or supermajority of independent directors, fund boards with less than a majority or supermajority of independent directors would be constrained from terminating an adviser because of their inability to enter into an interim advisory contract without obtaining an exemptive order. 9 Armada Board of Dirs., Federated, Kent Board of Dirs., Ropes & Gray, Sentinel Ind. Dirs., Sullivan & Cromwell, TIAA-CREF. 10 Federated, Kent Board of Dirs., Ropes & Gray. Furthermore, GEIC requested that the Commission exempt employees securities companies, as defined in section 2(a)(13) of the Act [15 U.S.C. 80a-2(a)(13)], from the Exemptive Rules' proposed independent majority and other independence-enhancing conditions because employees securities companies routinely rely on the Exemptive Rules but typically obtain an exemption from section 10(a) of the Act [15 U.S.C. 80a-10(a)] to permit them to operate without independent directors. 11 FEI, NASAA. 12 Bingham Dana, Capital Research, F. Colish (ind. dir.), Delaware Ind. Dirs., D. Egan (ind. dir.), Fulcrum Ind. Dirs., W. Glavin (ind. dir.), Horace Mann Board of Dirs., ICI, Janus Ind. Dirs., Kemper Ind. Dirs., Kobrick Board of Dirs., C. Ladner (ind. dir.), Lord Abbett Ind. Dirs., Munder Ind. Dirs., G. Neale/L. Fuller (ind. dirs.), S. Pruchansky (ind. dir.), Putnam Ind. Dirs., R. Redeker (ind. dir.), Sentinel Ind. Dirs., Vanguard. 13 AIMR, Alliance Ind. Dirs., Allmerica, Amer. Bankers, J. Carlin (ind. dir.), Coventry Ind. Dirs., Driehaus Ind. Dirs., EQ Advisors Ind. Dirs., Endeavor Ind. Dirs., Federated, P. Goldstein (ind. dir.), Kent Board of Dirs., Mercury Ind. Dirs., Merrill Cluster A Ind. Dirs., Merrill Global Cluster Ind. Dirs., Merrill Lynch, Philadelphia Bar, Sullivan & Cromwell, Vanguard Ind. Dirs., Wechsler Harwood, William Blair Ind. Dirs. 14 Capital Research, Federated, ICI. 15 Wilmer Cutler. 16 Sit Board of Dirs. (arguing that a board with a majority of independent directors is not better equipped to monitor conflicts of interest), Sullivan & Cromwell (arguing that there would be no enhanced protections that would result from an independent majority of directors, because the Exemptive Rules already require the approval of a majority of a fund's independent directors). 17 Federated, Federated Ind. Dirs., Philadelphia Bar Association, Ropes & Gray. 18 American Express Ind. Dirs., Coventry Ind. Dirs., D. Dean (ind. dir.), Denver Oppenheimer Ind. Dirs., A. Hines (ind. dir.), ICAP Ind. Dirs., Merrill Cluster A Ind. Dirs., Merrill Global Cluster Ind. Dirs., MSDW Ind. Dirs., G. Neale/L. Fuller (ind. dirs.), Oppenheimer Ind. Dirs., PaineWebber Ind. Dirs. 19 AMC (Mountain View) Ind. Dirs., Fidelity Ind. Dirs., K. Fox (ind. dir.), P. Gavian (ind. dir.), Lord Abbett Ind. Dirs., G. Lovejoy (ind. dir.), F. Milsaps (ind. dir.), MFS Ind. Dirs., Munder Ind. Dirs., Putnam Ind. Dirs., J. Strauss (ind. dir.). 20 ABA, AIM Advisors, Armanda Board of Directors, Dechert Price, Federated, Fidelity, ICI, Merrill Lynch, Northern Board of Dirs., Oppenheimer, Vanguard, Washington Management. An additional commenter, McMorgan & Co., opposed a two-thirds supermajority standard without explicitly endorsing a simple majority standard. 21 Allmerica, FEI, MPI, G. Putnam, V. Vander Weide. The ICI's Best Practices Report recommended a supermajority of independent directors as a best practice. 22 Commenters noted that this flexibility is particularly important for small funds. Commenters also noted that most funds already have at least a simple majority of independent directors and therefore would not have to undertake the cost of reconstituting their boards if the Commission adopts a simple majority standard. 23 P. Gavian (ind. dir.), Munder Ind. Dirs., New Alternatives Fund, G. Putnam. 24 G. Putnam. 25 P. Gavian (ind. dir.), Munder Ind. Dirs. Two commenters, however, opposed a 100 percent independence standard. Allmerica, V. Vander Weide. 26 V. Vander Weide. 27 ABA, AIM Advisors, ICI. 28 ICAP Ind. Dirs., Putnam Ind. Dirs. 29 Commenters recommended the following rule suspension periods. When a shareholder vote is not required: 90 days (Allmerica, Coventry Ind. Dirs., Dechert Price, Equitrust Ind. Dirs.); 90-120 days (Armada Board of Dirs., Northern Board of Dirs.); 120 days (Capital Research, Denver Oppenheimer Ind. Dirs., Federated, Fidelity, ICI, Merrill Lynch, Munder Ind. Dirs., G. Neale/L. Fuller (ind. dirs.), Oppenheimer, R. Redeker (ind. dir.)); 150 days (PaineWebber Ind. Dirs.); 180 days (AMC (Mountain View) Ind. Dirs., Victory Ind. Dirs.); 240 days (Fidelity Ind. Dirs.). When a shareholder vote is required: 180 days (Allmerica, Coventry Ind. Dirs., Dechert Price, Equitrust Ind. Dirs.); 210 days (Munder Ind. Dirs.); 240 days (AIM Advisors, Capital Research, Denver Oppenheimer Ind. Dirs., Federated, Fidelity, ICI, Merrill Lynch, G. Neale/L. Fuller (ind. dirs.), Oppenheimer, PaineWebber Ind. Dirs.); 270 days (R. Redeker (ind. dir.)); 300 days (AMC (Mountain View) Ind. Dirs.); 1 year (Fidelity Ind. Dirs.). 30 Armada Board of Dirs., Federated, ICI, Northern Board of Dirs. 31 AMC (Mountain View) Ind. Dirs., Federated, ICI. 32 ABA, AMC (Mountain View) Ind. Dirs., Allmerica, American Express Ind. Dirs., Armada Board of Dirs., Bancroft Ind. Dirs., Coventry Ind. Dirs., D. Dean (ind. dir.), Delaware Ind. Dirs., Denver Oppenheimer Ind. Dirs., EQ Advisors Ind. Dirs., Endeavor Ind. Dirs., FEI, Federated, Fidelity Ind. Dirs., K. Fox (ind. dir.), Goldman Sachs Ind. Dirs., A. Hines (ind. dir.), ICI, Lord Abbett Ind. Dirs., McMorgan & Co., F. Milsaps (ind. dir.), Munder Ind. Dirs., Northern Board of Dirs., Sentinel Ind. Dirs., J. Strauss (ind. dir.), Vanguard, Victory Ind. Dirs. 33 Rule 12b-1 under the Investment Company Act [17 CFR 270.12b-1] requires a fund relying on the rule to commit the selection and nomination of independent directors to the discretion of the fund's independent directors. 34 Sit Board of Dirs., Wilmer Cutler. The Sit Board of Directors contended that the self-selection and self-nomination proposal would perpetuate an adversarial atmosphere between independent directors and management, and Wilmer Cutler argued that all directors, independent and interested, owe a fiduciary duty to fund shareholders that extends to their seeking to select and nominate the best-qualified individuals as board members. Wilmer Cutler added that the proposal is not necessary because, if the Commission requires that a majority of a fund's directors be independent, this majority will have ample ability to significantly influence the selection and nomination of other board members. 35 Some commenters noted that the independent directors of funds relying on rule 12b-1 sometimes consult management when selecting and nominating independent directors. The Commission also requested comment whether it should further amend the Exemptive Rules to require that independent directors, rather than the entire board, elect other independent directors in those instances when a shareholder vote is not required. Those commenters who commented opposed this practice, arguing that interested directors should not be required to relinquish their fiduciary duty to vote for fellow board members. Dechert Price, Federated, Wilmer Cutler. 36 ABA, NYC Bar, Philadelphia Bar. 37 Baker & Hostetler, Bingham Dana, Davis Polk, Dechert Price, Drinker Biddle, Faegre & Benson, Godfrey & Kahn, Ropes & Gray, Sullivan & Cromwell. 38 D. Sturms, V. Vander Weide. 39 ABA, AMC (Mountain View) Ind. Dirs., Amer. Bankers, American Express Ind. Dirs., AmSouth Board of Dirs., Armada Board of Dirs., Baker & Hostetler, Bingham Dana, CitiFunds Ind. Dirs., Dechert Price, Delaware Ind. Dirs., D. Egan (ind. dir.), Eureka Ind. Dirs., Faegre & Benson, Federated, Fidelity Ind. Dirs., Frank Russell, Goldman Sachs Ind. Dirs., Highmark Ind. Dirs., Horace Mann Board of Dirs., Hotchkis and Wiley Ind. Dirs., ICAP Ind. Dirs., Janus Ind. Dirs., Kemper Ind. Dirs., C. Ladner (ind. dir.), Lord Abbett Ind. Dirs., MFS Ind. Dirs., Merrill Cluster A Ind. Dirs., Munder Ind. Dirs., Northern Board of Dirs., Oakmark Ind. Dirs., Oppenheimer, Philadelphia Bar, S. Pruchansky (ind. dir.), Prudential Ind. Dirs., G. Putnam, Putnam Ind. Dirs., R. Redeker (ind. dir.), Schwab Ind. Dirs., SouthTrust Ind. Dirs., SunAmerica Ind. Dirs., V. Vander Weide, Victory Ind. Dirs. 40 ABA, AIM Advisors, AIM Ind. Dirs., American Express Ind. Dirs., Armada Board of Dirs., Baker & Hostetler, CitiFunds Ind. Dirs., F. Colish (ind. dir.), Coventry Ind. Dirs., Delaware Ind. Dirs., L. Dill (ind. dir.), D. Driscoll (ind. dir.), D. Egan (ind. dir.), Equitrust Ind. Dirs., Evergreen Ind. Dirs., Federated, First American, Flag Ind. Dirs., Fulcrum Ind. Dirs., GEAM, Goldman Sachs Ind. Dirs., Horace Mann Board of Dirs., Hotchkis and Wiley Ind. Dirs., ICI, Infinity Ind. Dirs., Kemper Ind. Dirs., Kent Board of Dirs., C. Ladner (ind. dir.), Mercury Ind. Dirs., Merrill Cluster A Ind. Dirs., Merrill Global Cluster Ind. Dirs., Merrill Ind. Dirs., Merrill Lynch, Nations Ind. Dirs., Northern Board of Dirs., NYC Bar, PBHG Ind. Dirs., PaineWebber Ind. Dirs., Philadelphia Bar, Protective Ind. Dirs., S. Pruchansky (ind. dir.), Prudential Ind. Dirs., R. Redeker (ind. dir.), Sentinel Ind. Dirs., V. Stringer (ind. dir.), D. Sturms, SunAmerica Ind. Dirs., Vanguard, Victory Ind. Dirs., William Blair Ind. Dirs. 41 Commenters also expressed concern regarding the potentially "punitive" consequence of failing to meet the definition of "independent legal counsel," i.e., a fund's inability to rely on the Exemptive Rules. 42 ABA, AMC (Mountain View) Ind. Dirs., Alliance Ind. Dirs., Allmerica Ind. Dirs., Amer. Bankers, L. Dill (ind. dir.), EQ Advisors Ind. Dirs., Equitrust Ind. Dirs., Endeavor Ind. Dirs., Evergreen Ind. Dirs., Federated, Horace Mann Board of Dirs., ICI, Janus, Janus Ind. Dirs., Merrill Cluster A Ind. Dirs., Munder Ind. Dirs., NYC Bar, Oppenheimer, PaineWebber Ind. Dirs., Putnam Ind. Dirs., Ropes & Gray, Sullivan & Cromwell, SunAmerica Ind. Dirs. 43 FEI, Lord Abbett Ind. Dirs., D. Simon. 44 ABA, AIM Advisors, AIM Ind. Dirs., Alliance Ind. Dirs., Armada Board of Dirs., Bingham Dana, CitiFunds Ind. Dirs., F. Colish (ind. dir.), Coventry Ind. Dirs., Dechert Price, EQ Advisors Ind. Dirs., D. Egan (ind. dir.), Endeavor Ind. Dirs., Equitrust Ind. Dirs., Federated, Federated Ind. Dirs., Fidelity, First American, Flag Ind. Dirs., Fulcrum Ind. Dirs., GEAM, Infinity Ind. Dirs., MFS Ind. Dirs., Mercury Ind. Dirs., Merrill Cluster A Ind. Dirs., Merrill Lynch, Munder Ind. Dirs., Nations Ind. Dirs., Northern Board of Dirs., One Group Board of Dirs., Ropes & Gray, SunAmerica Ind. Dirs., Vanguard, WM Funds Ind. Dirs. 45 ABA, Equitrust Ind. Dirs., Evergreen Ind. Dirs., Horace Mann Board of Dirs., Hotchkis and Wiley Ind. Dirs., Mercury Ind. Dirs., Merrill Global Cluster Ind. Dirs., Merrill Ind. Dirs., Merrill Lynch. 46 AMC (Mountain View) Ind. Dirs., D. Driscoll (ind. dir.), P. Hardin (ind. dir.), ICI, F. Lager (ind. dir.), Merrill Lynch, Protective Ind. Dirs. 47 Alliance Ind. Dirs., Allmerica Ind. Dirs., Amer. Bankers, Berger Ind. Dirs., Coventry Ind. Dirs., Dechert Price, EQ Advisors, Endeavor Ind. Dirs., Fidelity, Fulcrum Ind. Dirs., GEAM, ICAP Ind. Dirs., Fulcrum Ind. Dirs., ICI, Janus, Janus Ind. Dirs., NYC Bar, Oppenheimer, Sullivan & Cromwell, WM Funds Ind. Dirs. 48 AMC (Mountain View) Ind. Dirs., Allmerica Ind. Dirs., Amer. Bankers, Baker & Hostetler, Bingham Dana, Capital Research, Denver Oppenheimer Ind. Dirs., First American, Frank Russell, GEAM, Hardin, ICI, Janus, Kobrick Board of Dirs., Merrill Cluster A Ind. Dirs., NYC Bar, Oppenheimer, PaineWebber Ind. Dirs., Putnam Ind. Dirs., Sullivan & Cromwell. 49 ABA, Allmerica, American Express Ind. Dirs., Baker & Hostetler, Bingham Dana, Capital Research, Equitrust Ind. Dirs., Eureka Ind. Dirs., Federated, First American, GEAM, ICI, Janus, G. Neale/L. Fuller (ind. dirs.), Oppenheimer, Schwab Ind. Dirs., Sullivan & Cromwell. 50 ABA, AMC (Mountain View) Ind. Dirs., Amer. Bankers, Armada Board of Dirs., Baker & Hostetler, Berger Ind. Dirs., L. Dill (ind. dir.), EQ Advisors Ind. Dirs., Endeavor Ind. Dirs., Highmark Ind. Dirs., A. Hines (ind. dir.), Horace Mann Ind. Dirs., ICI, Kemper Ind. Dirs., Oppenheimer, Philadelphia Bar, Ropes & Gray, SunAmerica Ind. Dirs. 51 ABA, AIM Advisors, AMC (Mountain View) Ind. Dirs., Amer. Bankers, Baker & Hostetler, Berger Ind. Dirs., CitiFunds Ind. Dirs., Davis Polk, D. Dill (ind. dir.), D. Driscoll (ind. dir.), D. Egan (ind. dir.), EQ Advisors Ind. Dirs., Endeavor Ind. Dirs., Federated, K. Fox (ind. dir.), Fulcrum Ind. Dirs., GEAM, A. Hines (ind. dir.), ICI, Infinity Ind. Dirs., Janus Ind. Dirs., Merrill Lynch, NYC Bar, PaineWebber Ind. Dirs., Putnam Ind. Dirs., Sullivan & Cromwell, SunAmerica Ind. Dirs., Vanguard. 52 Alliance Ind. Dirs., Armada Board of Dirs., Bingham Dana, Denver Oppenheimer Ind. Dirs., D. Doucette (ind. dir.), Faegre & Benson, First American, Frank Russell, Fulcrum Ind. Dirs., Highmark Ind. Dirs., ICI, Kobrick Board of Dirs., C. Ladner (ind. dir.), Mercury Ind. Dirs., Merrill Global Cluster Ind. Dirs., Merrill Lynch, Munder Ind. Dirs., NYC Bar, Oppenheimer, Philadelphia Bar, S. Pruchansky (ind. dir.), C. Sobczak (ind. dir.), V. Stringer (ind. dir.). 53 Alliance Ind. Dirs., Amer. Bankers, Armada Board of Dirs., Berger Ind. Dirs., Equitrust Ind. Dirs., Federated, Highmark Ind. Dirs., Horace Mann Board of Dirs., ICI, Janus, MFS Ind. Dirs., Merrill Cluster A Ind. Dirs., NYC Bar, Oppenheimer, Protective Ind. Dirs., Ropes & Gray, Schwab Ind. Dirs., Sullivan & Cromwell, SunAmerica Ind. Dirs., WM Funds Ind. Dirs. 54 Janus, Philadelphia Bar, Ropes & Gray, Sullivan & Cromwell. 55 ABA, Ropes & Gray. 56 AIM Ind. Dirs., Allmerica Ind. Dirs., Baker & Hostetler, Bingham Dana, EQ Advisors Ind. Dirs., Endeavor Ind. Dirs., Evergreen Ind. Dirs., Federated, Flag Ind. Dirs., Frank Russell, Fulcrum Ind. Dirs., Nations Ind. Dirs., PaineWebber Ind. Dirs., SunAmerica Ind. Dirs., Vantagepoint Ind. Dirs. 57 Allmerica Ind. Dirs., Baker & Hostetler, Federated, Frank Russell, SunAmerica Ind. Dirs. One of the conditions of certain manager-of-managers orders is that a fund's independent directors engage an independent counsel to represent them. 58 Frank Russell. 59 ABA, Bingham Dana, EQ Advisers Ind. Dirs., Godfrey & Kahn, Ropes & Gray. 60 Bingham Dana, GEAM. 61 The ICI's Best Practices Report, however, recommended that independent directors have qualified counsel who is independent of the adviser and the fund's other service providers. 62 Bancroft Ind. Dirs., Davis Polk, Federated, Godfrey & Kahn, Janus Ind. Dirs., F. Lager (ind. dir.), New Alternatives Fund, NYC Bar, Protective Ind. Dirs., C. Reaves, Ropes & Gray, Sit Board of Dirs., Sullivan & Cromwell, UMLLC. Two commenters advocated an exemption from the legal counsel proposal for small funds. Bancroft Ind. Dirs., Davis Polk. 63 V. Vander Weide. 64 Commenters also observed that legal expenses already typically represent a higher proportion of the expense structure of small fund groups than of large ones. 65 AMC (Mountain View) Ind. Dirs., C. Ladner (ind. dir.), S. Pruchansky (ind. dir.), Putnam Ind. Dirs., V. Vander Weide. 66 ABA, ICAP Ind. Dirs., Kobrick Board of Dirs., New Alternatives Fund, Protective Ind. Dirs. 67 Bingham Dana, Denver Oppenheimer Ind. Dirs. 68 ABA, Capital Research, Coventry Ind. Dirs., Dechert Price, Equitrust Ind. Dirs., Federated, Fidelity, ICI, Janus, MFS Ind. Dirs., Mercury Ind. Dirs., G. Neale/L. Fuller (ind. dirs.), Oakmark Ind. Dirs., Putnam Ind. Dirs., Schwab Ind. Dirs., SouthTrust Ind. Dirs., Vanguard. Many commenters characterized their approach as being "process-based." 69 New Alternatives Fund, C. Reaves. 70 Ropes & Gray. Several commenters also recommended that, if the Commission adopts the legal counsel proposal, it provide for a two-year transition period to allow funds to re-configure their legal relationships. 71 Capital Research, Denver Oppenheimer Ind. Dirs., Fidelity Ind. Dirs, Goldman Sachs Ind. Dirs., A. Hines (ind. dir.), ICI, MFS Ind. Dirs., Prudential Ind. Dirs., Ropes & Gray, D. Simon, Vanguard, Victory Ind. Dirs. The Oppenheimer Independent Directors supported the proposal, but expressed concern that this type of insurance coverage might not be widely available, or available at a reasonable price, and insurance companies are not required to offer it. 72 Federated, Oppenheimer. 73 Capital Research, Federated, ICI, G. Lovejoy (ind. dir.), MFS Ind. Dirs., Ropes & Gray. 74 Ropes & Gray noted that the joint insurance policies normally exclude coverage for claims made by a fund against its investment adviser, and that "this is an area of equal or greater concern than the exclusion covered by the proposal. . . ." D. Sturms supported the Commission's proposal but argued that a 1980 release [No. IC-11330 (Sept. 4, 1980)], "still imposes a number of unnecessary and costly procedural hurdles on independent directors seeking advancement of legal fees, particularly in actions brought against the independent directors by the adviser." The Commission addressed these concerns in the interpretive release accompanying the proposing release. See Matters Concerning Independent Directors of Investment Companies, Investment Company Act Release No. 24083 (Oct. 14, 1999). 75 AMC (Mountain View) Ind. Dirs., Capital Research, D. Dean (ind. dir.), Federated, Fidelity Ind. Dirs., Goldman Sachs Ind. Dirs., A. Hines (ind. dir.), ICI, Johnson Ind. Dirs., Lord Abbett Ind. Dirs., Munder Ind. Dirs., Oppenheimer, Oppenheimer Ind. Dirs., Prudential Ind. Dirs., Ropes & Gray, V. Vander Weide, Vanguard, Victory Ind. Dirs. One of these commenters, Munder Ind. Dirs., suggested that the proposal did not go far enough, and that all funds should be subject to the same standards on audit committee composition and disclosure. 76 Armada Board of Dirs. This commenter urged the Commission to consider alternatives to the proposed requirement such as a "committee of the whole," in which the entire board oversees the financial reporting and internal controls of the fund. It added that a "committee of the whole" would be particularly useful for smaller boards. 77 D. Dean (ind. dir.), Federated, Hibernia Ind. Dirs., ICI, Oppenheimer, Oppenheimer Ind. Dirs. Two commenters expressed concern that this language is an attempt by the Commission to "micro-manage" the activities of directors. G. Lovejoy (ind. dir.), Ropes & Gray. 78 Capital Research, Goldman Sachs Ind. Dirs, ICI. 79 AMC (Mountain View) Ind. Dirs., Capital Research, Federated, Fidelity Ind. Dirs., Ropes & Gray, Vanguard. Two commenters suggested that the rule could permit the audit committee provisions to be set forth in the fund's charter, bylaws, or some other fund document. ICI, V. Vander Weide. Ropes & Gray opposed the idea of requiring an annual representation from the fund's independent public accountants certifying their independence, but Vanguard stated that it is a useful practice. 80 Hotchkis and Wiley Ind. Dirs., W. Mintz (ind. dir.), Oppenheimer Ind. Dirs., R. Salomon (ind. dir.), V. Vander Weide. 81 ABA, ICI, PaineWebber Ind. Dirs, Sullivan & Cromwell, Vanguard, Victory Ind. Dirs. Of the six commenters opposing the proposal, four commenters specifically objected to the proposed five percent limitation. Vanguard suggested that the Commission increase the threshold to fifteen percent if it adopts the rule. The ICI suggested that the Commission eliminate the proposed five percent limitation, and instead require that an index fund track a broad-based market index. Both Sullivan & Cromwell and the PaineWebber Ind. Dirs. suggested that the five percent limitation was inappropriate, and Sullivan & Cromwell argued that any limitation in this area would be inappropriate. 82 Hotchkis & Wiley Ind. Dirs., ICI, Munder Ind. Dirs., Oppenheimer, PaineWebber Ind. Dirs., Ropes & Gray. The ICI urged that investments in unit investment trusts be treated in a manner similar to investments in index funds. Ropes & Gray urged that the proposal be broadened to cover interests in unregistered funds and other co-mingled investment vehicles and accounts. 83 Drinker Biddle suggested that the Commission clarify that a fund director will not lose his or her independent status because he or she owns securities issued by a fund that holds securities of the fund's investment adviser or principal underwriter (or their control person). In addition to the proposals discussed in this comment summary, the Commission proposed an amendment to rule 2a19-1, which provides an exemption from the Investment Company Act's broad prohibition on broker-dealers or their affiliates serving as independent directors. The proposal would have amended one of the conditions of rule 2a19-1 to permit broker-dealers or their affiliates to constitute no more than one-half (as opposed to a minority) of a fund's board. After the Commission issued the proposing release, Congress passed the Gramm-Leach-Bliley Act. Section 213 of the Gramm-Leach-Bliley Act amends the Investment Company Act (effective in May 2001) to allow a broker-dealer or its affiliate to serve as an independent director of a fund, if the broker-dealer has not executed portfolio transactions for, entered into principal transactions with, or distributed shares for the fund (or a related fund or account) in the last six months. One commenter (F. Colish (ind. dir.)) stated that the Commission's proposal is unnecessary in light of the Gramm-Leach-Bliley Act. Ropes & Gray requested that the Commission adopt a rule stating that a director will not be considered interested solely as a result of indirect, immaterial relationships with a broker-dealer. 84 ABA, AMC (Mountain View) Ind. Dirs., AmSouth Board of Dirs., C. Ansary/L. Steuart (ind. dirs.), F. Colish (ind. dir.), Dechert Price, Federated, Fidelity Ind. Dirs., A. Hines (ind. dir.), ICI, Kobrick Board of Dirs., McMorgan & Co., G. Neale/L. Fuller (ind. dirs.), One Group Board of Dirs., Oppenheimer, Sentinel Ind. Dirs., Washington Management. 85 Denver Oppenheimer Ind. Dirs., Janus, MSDW Ind. Dirs., Oppenheimer Ind. Dirs. 86 AMC (Mountain View) Ind. Dirs., American Express Ind. Dirs., AmSouth Board of Dirs., F. Colish (ind. dir.), Dechert Price, Delaware Ind. Dirs., McMorgan & Co., One Group Board of Dirs., Oppenheimer, Sentinel Ind. Dirs., Vanguard. 87 C. Ansary/L. Steuart (ind. dirs.), Bingham Dana, Denver Oppenheimer Ind. Dirs., Federated, Janus, MSDW Ind. Dirs., Oppenheimer Ind. Dirs. 88 Fidelity. 89 ABA, AMC (Mountain View) Ind. Dirs., C. Ansary/L. Steuart (ind. dirs.), Federated, Fidelity, Janus, MSDW Ind. Dirs., Oppenheimer, Washington Management. 90 Federated, Vanguard. 91 Vanguard. 92 ABA, AMC (Mountain View) Ind. Dirs., Capital Research, Denver Oppenheimer Ind. Dirs., Federated, Fidelity Ind. Dirs., Janus Ind. Dirs., ICI, MSDW Ind. Dirs., Oppenheimer, Ropes & Gray, Vanguard. 93 Wechsler Harwood. 94 ABA, ICI, McMorgan & Co., Sentinel Ind. Dirs. 95 American Express Ind. Dirs., Vanguard. 96 Fidelity. 97 A. Hines (ind. dir.). 98 American Express Ind. Dirs., Schwab Ind. Dirs., William Blair Ind. Dirs. 99 Vanguard. 100 AMC (Mountain View) Ind. Dirs., A. Hines (ind. dir.), ICI, MSDW Ind. Dirs. 101 AMC (Mountain View) Ind. Dirs., ICI, MSDW Ind. Dirs. 102 Delaware Ind. Dirs. 103 ABA, Capital Research, Fidelity, ICI, Janus, MSDW Ind. Dirs., Merrill Lynch, Ropes & Gray, Washington Management. 104 MSDW Ind. Dirs. 105 Vanguard. 106 American Express Ind. Dirs. 107 ABA, AMC (Mountain View) Ind. Dirs., AmSouth Board of Dirs., C. Ansary/L. Steuart (ind. dirs.), Capital Research, D. Egan (ind. dir.), Fidelity, Fidelity Ind. Dirs., First American, G. Putnam, Goldman Sachs Ind. Dirs., A. Hines (ind. dir.), ICI, F. Lager (ind. dir.), MSDW Ind. Dirs., McMorgan & Co., Munder Ind. Dirs., G. Neale/L. Fuller (ind. dirs.), Northern Board of Dirs., Putnam Ind. Dirs., R. Redeker (ind. dir.), Sentinel Ind. Dirs., V. Stringer (ind. dir.), Washington Management, William Blair Ind. Dirs. 108 AIM Advisors, Allmerica, Bancroft Ind. Dirs., CitiFunds Ind. Dirs., Denver Oppenheimer Ind. Dirs., D. Driscoll (ind. dir.), EQ Advisors Ind. Dirs., Endeavor Ind. Dirs., Federated, Janus, G. Lovejoy (ind. dir.), MFS Ind. Dirs., Mercury Ind. Dirs., Merrill Global Cluster Ind. Dirs., Merrill Ind. Dirs., Merrill Lynch, W. Mintz (ind. dir.), Oakmark Ind. Dirs., Oppenheimer Ind. Dirs., PBHG Ind. Dirs., Ropes & Gray, R. Salomon (ind. dir.), Schwab Ind. Dirs., Sit Board of Dirs., SouthTrust Ind. Dirs., Vanguard. 109 ABA, AMC (Mountain View) Ind. Dirs., Alliance Ind. Dirs., AmSouth Board of Dirs., C. Ansary/L. Steuart (ind. dirs.), Capital Research, Federated, Fidelity, Fidelity Ind. Dirs., Goldman Sachs Ind. Dirs., A. Hines (ind. dir.), ICI, Janus, Janus Ind. Dirs., MFS Ind. Dirs., MSDW Ind. Dirs., Merrill Global Cluster Ind. Dirs., Northern Board of Dirs., R. Redeker (ind. dir.), Sentinel Ind. Dirs., TIAA-CREF, Washington Management, William Blair Ind. Dirs. 110 ABA, Capital Research, Federated, Fidelity, Janus, ICI, MFS Ind. Dirs. See Item H of Form N-SAR [17 CFR 274.101] (defining "family of investment companies" to mean any two or more investment companies that share the same investment adviser or principal underwriter and hold themselves out to investors as related companies for purposes of investment and investor services). "Fund complex" is currently defined in the proxy rules as two or more funds 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 an investment adviser that is an affiliated person of the investment adviser of any of the other funds. See Item 22(a)(1)(v) of Schedule 14A. 111 D. Dean (ind. dir.), K. Fox (ind. dir.), J. Mitchell (ind. dir.), G. Neale/L. Fuller (ind. dirs.), Wechsler Harwood. 112 D. Driscoll (ind. dir.). See infra notes 113 and 114 and accompanying text (suggesting alternative methods of disclosing fund share ownership of directors). 113 AIM Advisors, D. Driscoll (ind. dir.), G. Lovejoy (ind. dir.). 114 Alliance Ind. Dirs., D. Driscoll (ind. dir.). 115 G. Neale/L. Fuller (ind. dirs.). 116 TIAA-CREF. 117 AMC (Mountain View) Ind. Dirs., Alliance Ind. Dirs., Fidelity Ind. Dirs., Golman Sachs Ind. Dirs., A. Hines (ind. dir.), ICI, Northern Board of Dirs. 118 ABA, AIM Advisors, Armada Board of Dirs., Capital Research, Citifunds Ind. Dirs., EQ Advisers Ind. Dirs., Endeavor Ind. Dirs., Fidelity, First American, K. Fox (ind. dir.), Hotchkis and Wiley Ind. Dirs., A. Hunter (ind. dir.), Janus, Janus Ind. Dirs., Johnson Ind. Dirs., L. Kedrowski (ind. dir.), G. Lovejoy (ind. dir.), MFS Ind. Dirs., MSDW Ind. Dirs., McMorgan & Co., Merrill Lynch, W. Mintz (ind. dir.), G. Neale/L. Fuller (ind. dirs.), Northern Board of Dirs., Oppenheimer, PBHG Ind. Dirs., Prudential Ind. Dirs., Putnam Ind. Dirs., R. Redeker (ind. dir.), Ropes & Gray, R. Salomon (ind. dir.), Sentinel Ind. Dirs., Sit Board of Dirs., R. Spies (ind. dir.), J. Strauss (ind. dir.), V. Stringer (ind. dir.), TIAA-CREF, Vanguard, Washington Management. 119 ABA, AIM Advisors, AIM Ind. Dirs., Capital Research, CitiFunds Ind. Dirs., Denver Oppenheimer Ind. Dirs., Federated, Fidelity, Flag Ind. Dirs., Fulcrum Ind. Dirs., Hotchkis and Wiley Ind. Dirs., ICI, Janus, G. Lovejoy (ind. dir.), MFS Ind. Dirs., MSDW Ind. Dirs., Merrill Global Cluster Ind. Dirs., Merrill Ind. Dirs., Merrill Lynch, Nations Ind. Dirs., G. Neale/L. Fuller (ind. dirs.), New England Board of Dirs., Oppenheimer Ind. Dirs., Putnam Ind. Dirs., R. Redeker (ind. dir.), Sentinel Ind. Dirs., TIAA-CREF, Victory Ind. Dirs. 120 Allmerica Ind. Dirs., C. Ansary/L. Steuart (ind. dirs.), Bancroft Ind. Dirs., EQ Advisors Ind. Dirs., Endeavor Ind. Dirs., First American, A. Hunter (ind. dir.), Johnson Ind. Dirs., L. Kedrowski (ind. dir.), McMorgan & Co., R. Spies (ind. dir.), J. Strauss (ind. dir.), V. Stringer (ind. dir.), Vanguard, Washington Management. 121 AIM Advisors, Armada Board of Dirs., Janus, Janus Ind. Dirs., McMorgan & Co., Oppenheimer, Philadelphia Bar, TIAA-CREF, Vanguard. 122 Putnam Ind. Dirs. 123 First American, A. Hunter (ind. dir.), L. Kedrowski (ind. dir.), Mercury Ind. Dirs., Merrill Global Cluster Ind. Dirs., Merrill Lynch, Ropes & Gray, R. Spies (ind. dir.), J. Strauss (ind. dir.), V. Stringer (ind. dir.). 124 MFS Ind. Dirs., Oakmark Ind. Dirs., Ropes & Gray, SouthTrust Ind. Dirs. 125 AIM Ind. Dirs., Fidelity Ind. Dirs., Flag Ind. Dirs., Nations Ind. Dirs. 126 TIAA-CREF. 127 Allmerica, Allmerica Ind. Dirs., Fulcrum Ind. Dirs., Horace Mann Board of Dirs., Northwestern Mutual. 128 PaineWebber Ind. Dirs., Victory Ind. Dirs. 129 R. Redeker (ind. dir.). 130 McMorgan & Co., V. Vander Weide. 131 V. Vander Weide. 132 Allmerica, Fidelity Ind. Dirs., Lord Abbett Ind. Dirs. 133 AMC (Mountain View) Ind. Dirs., Alliance Ind. Dirs., American Express Ind. Dirs., AmSouth Board of Dirs., C. Ansary/L. Steuart (ind. dirs.), CitiFunds Ind. Dirs., Davis Polk, Denver Oppenheimer Ind. Dirs., Driehaus Ind. Dirs., EQ Advisors Ind. Dirs., Endeavor Ind. Dirs., Evergreen Ind. Dirs., Federated, Fidelity, First American, K. Fox (ind. dir.), GEAM, W. Glavin (ind. dir.), Goldman Sachs Ind. Dirs., Hibernia Ind. Dirs., Hotchkis and Wiley Ind. Dirs., A. Hunter (ind. dir.), ICI, Janus, L. Kedrowski (ind. dir.), MFS Ind. Dirs., MSDW Ind. Dirs., Mercury Ind. Dirs., Merrill Cluster A Ind. Dirs., Merrill Global Cluster Ind. Dirs., Merrill Ind. Dirs., Merrill Lynch, New England Board of Dirs., Oppenheimer Ind. Dirs., Philadelphia Bar, Ropes & Gray, Sentinel Ind. Dirs., R. Spies (ind. dir.), J. Strauss (ind. dir.), V. Stringer (ind. dir.), D. Sturms, Sullivan & Cromwell, SunAmerica Ind. Dirs., Vanguard. 134 Allmerica, American Express Ind. Dirs., Bingham Dana, Capital Research, Dechert Price, Federated, Fidelity, ICI, Janus, MSDW Ind. Dirs., Mercury Ind. Dirs., Merrill Global Cluster Ind. Dirs., Merrill Lynch, Vanguard, Washington Management. 135 Alliance Ind. Dirs., American Express Ind. Dirs., Dechert Price, D. Driscoll (ind. dir.), Federated, First American, GEAM, A. Hunter (ind. dir.), L. Kedrowski (ind. dir.), R. Spies (ind. dir.), J. Strauss (ind. dir.), V. Stringer (ind. dir.), D. Sturms. 136 Goldman Sachs Ind. Dirs., Philadelphia Bar. 137 Sullivan & Cromwell. 138 Davis Polk. 139 ABA, AIM Advisors, C. Ansary/L. Steuart (ind. dirs.), Armada Board of Dirs., Capital Research, Drinker Biddle, Federated, GEAM, GEIC, ICI, MSDW Ind. Dirs., Merrill Lynch, PaineWebber Ind. Dirs., Philadelphia Bar, Vanguard, Washington Management. 140 ABA, AIM Advisors, AMC (Mountain View) Ind. Dirs., Allmerica, Amer. Bankers, American Express Ind. Dirs., C. Ansary/L. Steuart (ind. dirs.), Armada Board of Dirs., Bancroft Ind. Dirs., Berger Ind. Dirs., Bingham Dana, J. Carlin (ind. dir.), D. Carter (ind. dir.), CitiFunds Ind. Dirs., F. Colish (ind. dir.), Coventry Ind. Dirs., Dechert Price, Delaware Ind. Dirs., Denver Oppenheimer Ind. Dirs., Driehaus Ind. Dirs., D. Driscoll (ind. dir.), EQ Advisors Ind. Dirs., D. Egan (ind. dir.), Endeavor Ind. Dirs., EquiTrust Ind. Dirs., Eureka Ind. Dirs., Evergreen Ind. Dirs., Federated, Federated Ind. Dirs., Fidelity Ind. Dirs., First American, Flag Ind. Dirs., K. Fox (ind. dir.), Fulcrum Ind. Dirs., W. Glavin (ind. dir.), Goldman Sachs Ind. Dirs., Hibernia Ind. Dirs., Highmark Ind. Dirs., A. Hines (ind. dir.), Horace Mann Board of Dirs., Hotchkis and Wiley Ind. Dirs., A. Hunter (ind. dir.), ICI, Janus, Janus Ind. Dirs., Johnson Ind. Dirs., Kemper Ind. Dirs., Kent Board of Dirs., Kobrick Board of Dirs., C. Ladner (ind. dir.), F. Lager (ind. dir.), Lord Abett Ind. Dirs., MFS Ind. Dirs., Mercury Ind. Dirs., Merrill Cluster A Ind. Dirs., Merrill Global Cluster Ind. Dirs., Merrill Ind. Dirs., Merrill Lynch, W. Mintz (ind. dir.), J. Mitchell (ind. dir.), Munder Ind. Dirs., Nations Ind. Dirs., G. Neale/L. Fuller (ind. dirs.), One Group Board of Dirs., Oppenheimer, PBHG Ind. Dirs., Philadelphia Bar, Protective Ind. Dirs., S. Pruchansky (ind. dir.), Prudential Ind. Dirs., Ropes & Gray, R. Salomon (ind. dir.), Schwab Ind. Dirs., V. Stringer (ind. dir.), Sullivan & Cromwell, SunAmerica Ind. Dirs., TIAA-CREF, Vanguard, Vanguard Ind. Dirs., Vantagepoint Ind. Dirs., Victory Ind. Dirs., WM Funds Ind. Dirs., Washington Management, William Blair Ind. Dirs. 141 ABA, AIM Advisors, AIM Ind. Dirs., Allmerica, Allmerica Ind. Dirs., Amer. Bankers, AMC (Mountain View) Ind. Dirs., AmSouth Board of Dirs., Armada Board of Dirs., Berger Ind. Dirs., Bingham Dana, Capital Research, J. Carlin (ind. dir.), D. Carter (ind. dir.), CitiFunds Ind. Dirs., F. Colish (ind. dir.), Coventry Ind. Dirs., D. Dean (ind. dir.), Delaware Ind. Dirs., Denver Oppenheimber Ind. Dirs., Driehaus Ind. Dirs., D. Driscoll (ind. dir.), D. Doucette (ind. dir.), EQ Advisors Ind. Dirs., D. Egan (ind. dir.), Endeavor Ind. Dirs., EquiTrust Ind. Dirs., Eureka Ind. Dirs., Evergreen Ind. Dirs., Federated, Federated Ind. Dirs., Fidelity, Fidelity Ind. Dirs., Flag Ind. Dirs., Fulcrum Ind. Dirs., GEAM, W. Glavin (ind. dir.), Goldman Sachs Ind. Dirs., Highmark Ind. Dirs., Horace Mann Board of Dirs., Hotchkis and Wiley Ind. Dirs., A. Hunter (ind. dir.), ICAP Ind. Dirs., ICI, Janus, Janus Ind. Dirs., Johnson Ind. Dirs., L. Kedrowski (ind. dir.), Kemper Ind. Dirs., Kent Board of Dirs., Kobrick Board of Dirs., C. Ladner (ind. dir.), F. Lager (ind. dir.), Lord Abbett Ind. Dirs., MFS Ind. Dirs., Mercury Ind. Dirs., Merrill Cluster A Ind. Dirs., Merrill Global Cluster Ind. Dirs., Merrill Ind. Dirs., Merrill Lynch, W. Mintz (ind. dir.), Munder Ind. Dirs., Nations Ind. Dirs., G. Neale/L. Fuller (ind. dirs.), New England Board of Dirs., Oakmark Ind. Dirs., One Group Board of Dirs., Oppenheimer, PBHG Ind. Dirs., PaineWebber Ind. Dirs., Protective Ind. Dirs., S. Pruchansky (ind. dir.), Prudential Ind. Dirs., Putnam Ind. Dirs., Ropes & Gray, R. Salomon (ind. dir.), Schwab Ind. Dirs., Sentinel Ind. Dirs., Sit Board of Dirs., C. Sobczak (ind. dir.), SouthTrust Ind. Dirs., R. Spies (ind. dir.), J. Strauss (ind. dir.), V. Stringer (ind. dir.), D. Sturms, Sullivan & Cromwell, TIAA-CREF, Vanguard, Vantagepoint Ind. Dirs., Victory Ind. Dirs., WM Funds Ind. Dirs., Washington Management, William Blair Ind. Dirs. 142 AIM Ind. Dirs., Allmerica, Amer. Bankers, American Express Ind. Dirs., Berger Ind. Dirs., D. Carter (ind. dir.), CitiFunds Ind. Dirs., Dechert Price, Delaware Ind. Dirs., Denver Oppenheimer Ind. Dirs., Driehaus Ind. Dirs., EQ Advisors Ind. Dirs., D. Egan (ind. dir.), Endeavor Ind. Dirs., Evergreen Ind. Dirs., Fidelity, Flag Ind. Dirs., Fulcrum Ind. Dirs., Hibernia Ind. Dirs., ICI, Janus Ind. Dirs., Kemper Ind. Dirs., Kobrick Board of Dirs., Merrill Global Cluster Ind. Dirs., W. Mintz (ind. dir.), Nations Ind. Dirs., New England Board of Dirs., One Group Board of Dirs., Oppenheimer Ind. Dirs., PBHG Ind. Dirs., Protective Ind. Dirs., Prudential Ind. Dirs., Sentinel Ind. Dirs., SunAmerica Ind. Dirs., Vangaurd Ind. Dirs. 143 Berger Ind. Dirs., Bingham Dana, CitiFunds Ind. Dirs., Denver Oppenheimer Ind. Dirs., EQ Advisors Ind. Dirs., Endeavor Ind. Dirs., Fulcrum Ind. Dirs., GEAM, W. Glavin (ind. dir.), Hotchkis and Wiley Ind. Dirs., ICAP Board of Dirs., Johnson Ind. Dirs., F. Lager (ind. dir.), MFS Ind. Dirs., Mercury Ind. Dirs., Merrill Cluster A Ind. Dirs., Merrill Global Cluster Ind. Dirs., Merrill Ind. Dirs., Merrill Lynch, W. Mintz (ind. dir.), Oakmark Ind. Dirs., One Group Board of Dirs., Oppenheimer, PBHG Ind. Dirs., Protective Ind. Dirs., S. Pruchansky (ind. dir.), Prudential Ind. Dirs., R. Salomon (ind. dir.), Schwab Ind. Dirs., Sentinel Ind. Dirs., Sit Board of Dirs., SouthTrust Ind. Dirs., Vanguard, Victory Ind. Dirs., William Blair Ind. Dirs. 144 ABA, AMC (Mountain View) Ind. Dirs., AmSouth Board of Dirs., Capital Research, Federated, Fidelity, Fidelity Ind. Dirs., Highmark Ind. Dirs., ICI, Janus, Kobrick Board of Dirs., Munder Ind. Dirs., G. Neale/L. Fuller (ind. dirs.), New England Board of Dirs., Putnam Ind. Dirs., D. Sturms, TIAA-CREF, WM Funds Ind. Dirs., Washington Management. 145 D. Doucette (ind. dir.), C. Sobczak (ind. dir.). 146 AIM Ind. Dirs., AMC (Mountain View) Ind. Dirs., AmSouth Board of Dirs., F. Colish (ind. dir.), Davis Polk, Delaware Ind. Dirs., Denver Oppenheimer Ind. Dirs., Flag Ind. Dirs., Highmark Ind. Dirs., MFS Ind. Dirs., Nations Ind. Dirs., One Group Board of Dirs., Schwab Ind. Dirs., D. Sturms, Vantagepoint Ind. Dirs. 147 Highmark Ind. Dirs., Schwab Ind. Dirs., Vantagepoint Ind. Dirs. 148 Allmerica, Allmerica Ind. Dirs., J. Carlin (ind. dir.), Eureka Ind. Dirs., Johnson Ind. Dirs., C. Ladner (ind. dir.), Ropes & Gray. 149 The additional persons include: (1) a fund's administrator or a person directly or indirectly controlling the administrator; (2) a person directly or indirectly controlled by or under common control with the fund's investment adviser, principal underwriter, or administrator; (3) any other investment company with the same administrator as the fund; (4) any other investment company with an investment adviser, principal underwriter, or administrator that directly or indirectly controls, is controlled by, or is under common control with an investment adviser, principal underwriter, or administrator of the fund; and (5) any officer of (i) the fund; (ii) the investment adviser, principal underwriter, or administrator of the fund; (iii) a person directly or indirectly controlling, controlled by, or under common control with the fund's investment adviser, principal underwriter, or administrator; (iv) an investment company with the same investment adviser, principal underwriter, or administrator as the fund; or (v) an investment company with an investment adviser, principal underwriter, or administrator that directly or indirectly controls, is controlled by, or is under common control with an investment adviser, principal underwriter, or administrator of the fund. 150 ABA, Allmerica Ind. Dirs., Federated, Fidelity, GEAM, Goldman Sachs Ind. Dirs., Highmark Ind. Dirs., Horace Mann Board of Dirs., ICI, Janus, Kemper Ind. Dirs., Northern Board of Dirs., Oppenheimer Ind. Dirs., Protective Ind. Dirs., MFS Ind. Dirs., Ropes & Gray, D. Sturms, Sullivan & Cromwell, Vantagepoint Ind. Dirs., WM Funds Ind. Dirs., Washington Management. 151 GEAM, Goldman Sachs Ind. Dirs., Highmark Ind. Dirs., Horace Mann Board of Dirs., Janus, Kemper Ind. Dirs., Oppenheimer Ind. Dirs., Protective Ind. Dirs., Ropes & Gray, Sullivan & Cromwell, Vantagepoint Ind. Dirs., Washington Management. 152 ABA, Allmerica Ind. Dirs., Federated, ICI, Janus. 153 GEAM, Federated, Fidelity, ICI, Janus, Kemper Ind. Dirs., D. Sturms, WM Funds Ind. Dirs. 154 ABA, GEAM. 155 Fidelity, Kemper Ind. Dirs. 156 MFS Ind. Dirs. 157 ABA, AMC (Mountain View) Ind. Dirs., Allmerica Ind. Dirs., Bancroft Ind. Dirs., D. Dean (ind. dir.), Delaware Ind. Dirs., Denver Oppenheimer Ind. Dirs., EQ Advisors Ind. Dirs., Endeavor Ind. Dirs., Federated, Fidelity, Fidelity Ind. Dirs., ICAP Board of Dirs., MFS Ind. Dirs., McMorgan & Co., J. Mitchell (ind. dir.), Oakmark Ind. Dirs., Oppenheimer, Protective Ind. Dirs., Ropes & Gray, Sentinel Ind. Dirs., SouthTrust Ind. Dirs., Vanguard. 158 Federated, Fidelity, Oakmark Ind. Dirs., SouthTrust Ind. Dirs. 159 ABA, AMC (Mountain View) Ind. Dirs., Fidelity Ind. Dirs., ICAP Board of Dirs., ICI, Kemper Ind. Dirs., MFS Ind. Dirs., Vanguard. 160 Oppenheimer, Ropes & Gray. 161 Protective Ind. Dirs. 162 J. Mitchell (ind. dir.). 163 EQ Advisors Ind. Dirs., Endeavor Ind. Dirs. 164 McMorgan & Co. 165 Fidelity Ind. Dirs. 166 ABA, Federated, GEAM, ICI, Janus. 167 ICI, Janus. 168 GEAM. 169 Federated. 170 ICI. 171 ABA. 172 EQ Advisors Ind. Dirs., Endeavor Ind. Dirs., ICI, MSDW Ind. Dirs., Mercury Ind. Dirs., Merrill Cluster A Ind. Dirs., Merrill Global Cluster Ind. Dirs., Ropes & Gray. 173 Federated, Fidelity, ICI. 174 Oppenheimer Ind. Dirs. 175 First American, A. Hunter (ind. dir.), L. Kedrowski (ind. dir.), R. Spies (ind. dir.), J. Strauss (ind. dir.), V. Stringer (ind. dir.). 176 Davis Polk, Ropes & Gray. 177 W. Glavin (ind. dir.), S. Pruchansky (ind. dir.). 178 Victory Ind. Dirs. 179 ABA, AIM Advisors, AMC (Mountain View) Ind. Dirs., C. Ansary/L. Steuart (ind. dirs.), Armada Board of Dirs., CitiFunds Ind. Dirs., Denver Oppenheimer Ind. Dirs., Federated, Federated Ind. Dirs., K. Fox (ind. dir.), Hibernia Ind. Dirs., ICI, G. Lovejoy (ind. dir.), MFS Ind. Dirs., MSDW Ind. Dirs., Merrill Cluster A Ind. Dirs., Oppenheimer, Oppenheimer Ind. Dirs., Ropes & Gray, Vanguard, Washington Management, William Blair Ind. Dirs. 180 MSDW Ind. Dirs., Oppenheimer Ind. Dirs., V. Vander Weide, Victory Ind. Dirs. 181 V. Vander Weide. 182 Vanguard. 183 Victory Ind. Dirs. 184 ABA, C. Ansary/L. Steuart (ind. dirs.), Capital Research, Federated, Fidelity, ICI, Oppenheimer, Washington Management. 185 Federated, ICI. 186 Vanguard. 187 ABA, Capital Research, Federated, Fidelity, ICI. 188 Fidelity Ind. Dirs. 189 AIM Advisors, ICI. 190 ABA, Dechert Price, Denver Oppenheimer Ind. Dirs. 191 ABA. 192 Federated, GEAM, ICI, MSDW Ind. Dirs., Philadelphia Bar, Vanguard. http://www.sec.gov/rules/extra/brownin1.htm
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