January 27, 2000
Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 5th Street, NW
Washington, D. C. 20549-0609
Re: File No. S7-23-99
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Dear Mr. Katz,
I am the Chairman of Board and lead Independent Director of the Vantagepoint Funds (the "Fund"). The Fund is a multi-manager family of funds with one investment adviser and twenty-two subadvisers. The Fund has thirteen underlying investment portfolios (the "Portfolios") with approximately $7 billion in total assets. I am writing on behalf of the Independent Directors of the Fund to comment on the Securities and Exchange Commission's recent rule proposal relating to independent directors (the "Rule").
We are very concerned about the impact of the Rule's proposed disclosure on the Fund and the Independent Directors because of the special structure of the Fund. Specifically, we are concerned about 1) the breadth of the information required about persons related to subadvisers and immediate family members; and 2) about the limitations on our ability to retain counsel.
The Fund attempts to provide shareholders with the best possible investment advice by employing a large number of highly qualified subadvisers (the "Subadvisers"). Vantagepoint Investment Advisers, LLC, the Fund's investment adviser (the "Adviser") evaluates the Subadvisers, recommends their selection, continuation and termination to the Fund's Board and monitors their ongoing services to the Fund. Subadvisers are replaced if they do not continue to meet the standards of the Fund and the Adviser. Last year the Fund terminated five Subadvisers and hired six Subadvisers.
The Fund currently has twenty-two Subadvisers whose services are limited to providing investment advice. None of the Subadvisers is affiliated with the Adviser, the Fund's principal underwriter or its administrator. All contracts with the Subadvisers are negotiated at arms length. While each Subadviser is an "investment adviser" under the Investment Company Act of 1940, its relationship to the Fund and the Adviser is that of a portfolio manager hired by the Fund and working under the supervision of the Adviser.
Five of the Fund's current Subadvisers are among the nation's top 25 mutual fund investment advisers in assets under management. Together the Subadvisers advise approximately 7,500 mutual funds and other accounts.
II. Disclosure about Possible Conflicts of Interest
As we understand it, the portions of the proposed Rule requiring information about persons related to the Subadvisers and immediate family members are intended to permit shareholders and others to know about possible conflicts between a director's duties to a fund and its shareholders and his or her other interests.
We believe that because of the Fund's multimanager structure, many of the connections to be disclosed with persons related to the Subadvisers are so remote from the Fund that there are no conflicts of interest.
A. Persons Related to the Subadvisers
Our first concern is the disclosure about connections between the Independent Directors, our immediate family members and certain persons related to the Subadvisers. Such connections include:
1. positions as an officer, employee, director, general partner or otherwise ("Positions") with a mutual fund (or person that would be a mutual fund but for certain exclusions) with an investment adviser which is a Subadviser of the Fund or with an investment adviser, principal underwriter, or administrator that controls, is controlled by, or is under common control with a Subadviser of the Fund ("Unaffiliated Funds"); and
2. any material interest, direct or indirect, in any direct or indirect material transaction or any direct or indirect material relationship ("Transactions and/or Relationships") with any Unaffiliated Fund or any officer of an Unaffiliated Fund, a Subadviser or any person that controls, is controlled by, or under common control with a Subadviser ("Unaffiliated Officers").
Because of the Fund's special circumstances, the Rule would require investigation of possible remote connections between the Independent Directors, our immediate family members and thousands of Unaffiliated Funds and Unaffiliated Officers.
If a connection existed it would be disclosed. Therefore, if an immediate family member is an employee of an Unaffiliated Fund, or an Independent Director is a partner in an audit firm that audits an Unaffiliated Fund, these connections would be disclosed. However, such Positions and Transactions are so far removed from any influence by the Fund that there is almost no opportunity for an Independent Director to put these remote interests above the shareholders' interests. Indirect connections with such persons are even less likely to influence on an Independent Director. We believe these distant connections are unlikely to impact an Independent Director's allegiance to the Fund, even in the selection, retention or termination of any Subadviser.
Immediate Family Members
Our second concern is the breadth of the definition of immediate family members within the context of the Rule and the addition of brothers and sisters-in-law, mothers and fathers-in-law and step relationships to earlier definitions of the term. The Rule proposes to require persons beyond the nuclear family to disclose a broad range of direct and indirect connections with an extensive group of persons. As stated above, there are twenty-two Subadvisers and thousands of Unaffiliated Funds and Unaffiliated Officers. It is not practicable to assume that an Independent Director's family members, especially more distant family members, voluntarily will provide this information. The inclusion of certain in-laws and step relationships makes the likelihood of obtaining this information even more remote.
The disclosure of remote Positions, Transactions and Relationships with persons related to the Subadvisers, such as Unaffiliated Funds or Unaffiliated Officers, will not assist shareholders or others. These connections are so distant that that none would affect an Independent Director's allegiance to the Fund and its shareholders. Their peripheral nature makes it unlikely that an Independent Director could benefit from them at the expense of the Fund or would have the opportunity to favor them over the Fund. As a result, disclosure would be irrelevant and confusing to shareholders and others and would serve no public purpose.
The effort to collect the necessary data, and the time and cost to the Fund and the Independent Directors of identifying and disclosing, initially and on an ongoing basis, all the specified connections between persons related to the Subadviser and the Independent Directors will be a substantial burden and will outweigh any benefit to shareholders or others.
Since the Subadvisers have no relationship with the Fund, other than their subadvisory agreements, information about any connections, especially any indirect connections, of persons related to the Subadviser could be difficult or costly to obtain. Additionally, the Independent Directors may not be able to obtain information from an extended group of family members about the broad range of connections required. As a result, we may not be able to accurately identify information that must be disclosed.
Finally, the burden of providing this information could have a chilling effect on the willingness of individuals to serve as Independent Directors and on the selection of possible future Subadvisers.
IV. Independent Counsel
Qualified independent counsel currently represents the Independent Directors. However, if we ever decide to employ additional counsel or change our existing counsel, it will be difficult to find qualified counsel who within the last two years has not served as counsel to any of the Fund's many Subadvisers. As a result, the number of attorneys able to serve the Independent Directors as independent counsel will be far more limited than the number available to fund groups with only one investment adviser.
V. Conclusion and Recommendations
For the reasons discussed above, we believe that the Rule unintentionally and unnecessarily burdens the Fund and us as its Independent Directors. We have the following recommendations that we believe are appropriate and fair to the Fund, the Independent Directors, shareholders and others:
1.The Rule should not require the same information about subadvisers of multimanager funds as is required of a fund's principal investment adviser. Specifically, the Rule should not require information about Unaffiliated Funds or Transactions or Relationships of Unaffiliated Officers. Disclosure about subadvisers of a multimanager fund should be similar to that required about a policy making officer of an investment adviser to reflect the way that such subadvisers actually operate.
2.The Rule should define immediate family members to include only spouses, natural, step and adoptive children under twenty-one, and relatives living in an independent director's home. If the definition of immediate family member includes additional family members, the Rule should only require disclosure of information that is known to the independent director without investigation.
3.The Rule should permit independent directors to select as independent counsel an attorney, otherwise qualified, who represents or has represented within the past two years a subadviser or person affiliated with the subadviser of a multimanager fund.
We urge the Securities and Exchange Commission to carefully consider our comments and to make appropriate changes to the Rule before adopting it. Thank you for the opportunity to comment on the Rule.
Chairman of the Board of the