Thursday, 09 May 2002 08:00
No-Action Letter under Investment Company Act – Section 17(d), Rule 17d-1
Mutual Fund Directors Forum
May 9, 2002
|Mutual Fund Directors RESPONSE OF THE OFFICE OF CHIEF COUNSEL DIVISION OF INVESTMENT MANAGEMENT||Our Ref. No. 2002418931 Forum File No. 132-3|
By letter dated April 11, 2002, you request our concurrence with your view that, as described in your letter, the payment by registered investment companies (“Funds”), pursuant to the authorization of their boards of directors, of the dues of their independent directors1 for membership in the Mutual Fund Directors Forum (the “Forum”), as well as the expenses incurred by the independent directors in attending educational programs or purchasing educational information offered by the Forum (“Forum-related expenses”), would not constitute a joint arrangement for purposes of Section 17(d) of the Investment Company Act of 1940 (“Act”) and Rule 17d-1 thereunder.
You state that the Forum was created in 1999 under the name Mutual Fund Directors Education Council and has recently converted to a non-profit educational membership corporation. You state that the Forum seeks to promote improved Fund governance and that the Forum will conduct continuing education programs and other activities that are designed to assist independent directors in becoming effective advocates of Fund shareholder interests. More specifically, you state that the proposed activities of the Forum include: (1) providing a newsletter and an email communication vehicle for members, including the creation of a website; (2) conducting annual conferences that are designed to identify and discuss major policy issues of importance to Fund directors; (3) offering executive education courses; (4) functioning as an information resource for Fund independent directors; and (5) serving as an occasional sponsor of research regarding important subjects of interest to Fund directors. You state that the Forum’s advisory board will include mutual fund independent directors, corporate governance experts, investor advocates, industry representatives, attorneys, and academics. You state that the Forum anticipates that, subject to approval by their boards of directors, the Funds will pay reasonable membership dues for their independent directors who join the Forum, as well as attendance, travel and related expenses2 incurred by their independent directors who participate in the educational programs offered by the Forum or who purchase educational information offered by the Forum.3 You represent that the dues will be fair and reasonable in light of the usual and customary dues charged by other similar membership organizations as well as industry-related trade associations. 4
Section 17(d) of the Act authorizes the Commission to adopt rules for the purpose of limiting or preventing Funds from participating in joint transactions with affiliated persons on a basis different from or less advantageous than that of any other participant.5 Rule 17d-1, in relevant part, provides that no affiliated person of a Fund, and no affiliated person of an affiliated person (collectively, “affiliated persons”), acting as a principal, shall participate in any joint enterprise, joint arrangement or profit-sharing plan, as defined in the rule,6 in which any Fund is a participant, without first obtaining an order from the Commission. Section 17(d) and Rule 17d-1, taken together, are designed to prevent, among other things, affiliated persons of registered investment companies from taking undue advantage of a Fund in transactions in which such persons and the Fund participate in a joint undertaking.7 Some element of combination or profit motive generally must be present for Section 17(d) and Rule 17d-1 to apply.8 You are concerned that the payment by Funds, pursuant to the authorization of their boards, of the membership dues of their independent directors in the Forum as well as their Forum-related expenses could be deemed to constitute a joint arrangement between a Fund and an affiliated person of the Fund for purposes of Section 17(d) and Rule 17d-1 because the director may personally benefit in some way from the payment. You assert, however, that the staff has stated generally that the actions of Fund directors that are taken in their capacities as directors would not constitute joint arrangements for purposes of Rule 17d-1 because the requisite element of “combination” is not present.9 You assert that a board’s authorization of the use of Fund assets, resulting in the Fund’s payment of Forum membership dues and Forum-related expenses for the independent directors, would be within the scope and in furtherance of the independent directors’ duties to their respective Funds. You contend therefore, that a board’s authorization of the payment, and a Fund’s resulting payment, of such dues and expenses do not entail a joint arrangement for purposes of Section 17(d) and Rule 17d-1. Based on the facts and representations set forth in your letter, we agree that the payment by Funds, pursuant to the authorization of their boards of directors, of the dues of their independent directors for membership in the Forum, as well as Forum-related expenses, would not constitute a joint arrangement for purposes of Section 17(d) of the Act and Rule 17d-1 thereunder.10 Susan M. Olson Senior Counsel
1 An independent director of a Fund is a director who is not an “interested person” of the Fund or its investment adviser, as defined in Section 2(a)(19) of the Investment Company Act (an “independent director”). You note that independent directors play a critical role in overseeing Fund operations and protecting shareholders. See Interpretative Matters Concerning Independent Directors of Investment Companies, Rel. No. IC-24083 (Oct. 14, 1999) (“Independent Directors Release”); Role of Independent Directors of Investment Companies, Rel. No. IC-24082 (Oct. 14, 1999). 2 In addition to membership dues, you anticipate that Funds will pay expenses such as registration fees, travel and hotel expenses, and expenses for meals not otherwise covered by registration fees, incurred in connection with the directors’ attendance at the Forum’s educational programs. 3 With respect to independent directors who serve on multiple boards of Funds that are under common management, you state that the Forum anticipates that the payment by the Funds of their independent directors’ dues and expenses would be apportioned among the Funds in the complex in a fair and reasonable manner similar to the apportionment of other expenses that are not necessarily Fund-specific, such as general overhead items, directors’ and officers’ insurance, directors’ travel expenses related to attendance at Board meetings and legal fees. 4 You state that it is presently contemplated that membership dues would entitle members to access a Forum website, receive from the Forum periodic and special publications, participate in seminars or programs limited to Forum members, and receive a reduction in registration fees for attendance at Forum-sponsored conferences that are not otherwise limited to Forum members. 5 An independent director of a Fund is an affiliated person of that Fund because Section 2(a)(3)(D) of the Act defines an “affiliated person” of another person to include any director of such other person. 6 Rule 17d-1(c) under the Act defines a “[j]oint enterprise or other joint arrangement or profit-sharing plan” to include any contract or arrangement concerning an enterprise or undertaking whereby an investment company and an affiliated person of the company “have a joint or joint and several participation, or share in the profits of such enterprise or undertaking.” 7 In the Matter of Imperial Financial Services, Inc., Rel. No. 34-7684 (Aug. 26, 1965). See also Hearings on S. 3580 Before Subcomm. of the Senate Comm. on Banking and Currency, 76th Cong., 3rd Sess. 256 (Apr. 9, 1940) (statement of David Schenker, Chief Counsel, Securities and Exchange Commission, Investment Trust Study) (indicating that the purpose of Commission rules to be promulgated under Section 17(d) (originally drafted as Section 17(a)(4)) is to “insure fair dealing and no overreaching”). 8 See Massachusetts Mutual Life Insurance Company (pub. avail. June 7, 2000) and SMC Capital, Inc. (pub. avail. Sept. 5, 1995) (citing In re Steadman Security Corp., [1974-75 Transfer Binder] Fed. Sec. L. Rep. (CCH) ¬∂ 80,038 at 84,848 (Dec. 20, 1974) and SEC v. Talley Indust., Inc., 399 F.2d 396, 403 (2d Cir. 1968), cert. denied, 393 U.S. 1015 (1969)). 9 Independent Directors Release, note 1, supra. 10 In the Independent Directors Release, the staff stated that whether there is some element of combination under Section 17(d) does not depend on whether the directors’ actions are motivated by self-interest. The staff further stated, however, that if directors’ actions are motivated solely by self-interest, they may have breached their duties of care or loyalty under state law or their fiduciary duties under Section 36(a) of the Act. Section 36(a) authorizes the Commission to institute a lawsuit alleging, among other things, that a director of a Fund, including an independent director, has engaged in an act or practice constituting a breach of fiduciary duty involving personal misconduct in respect of any Fund for which such person serves or acts. You have not asked, and we take no position regarding, whether the directors’ authorization of the payment by Funds of Forum dues and expenses would result in the directors breaching their duties of care or loyalty under state law or their duties under Section 36(a) of the Act.
MUTUAL FUND DIRECTORS FORUM 1775 Eye Street, N.W. Washington, D.C. 20006-2401 April 11, 2002 Douglas J. Scheidt, Esq. Associate Director and Chief Counsel Division of Investment Management United States Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549-0506 Dear Mr. Scheidt: The purpose of this letter is to request that the Division of Investment Management (the “Staff”) concur with our view that the payment by registered investment companies (“Funds”), pursuant to the authorization of their Directors/Trustees (“Directors”), of the dues of their independent directors1 for membership in the Mutual Fund Directors Forum (the “Forum”), as well as the expenses incurred by the independent directors in attending educational programs or purchasing educational information offered by the Forum (“Forum-related expenses”), would not constitute a joint arrangement for purposes of Section 17(d) of the Investment Company Act of 1940, as amended (the “1940 Act”), and Rule 17d-1 thereunder. It is contemplated that the Funds will pay reasonable individual membership dues and attendance, travel and related expenses incurred by their independent directors in participating in educational programs offered by the Forum, or in purchasing educational information from the Forum in both hard copy and electronic form. Funds also may pay these expenses (except membership dues) for their independent directors who choose not to become Forum members.2 For the reasons discussed below, we believe that the proposed expenditures will be an appropriate use of Fund assets and will not raise the types of concerns that Section 17(d) and Rule 17d-1 are intended to address.
The Forum was created in 1999 (under the name Mutual Fund Directors Education Council) in response to a call by the Commission and its then Chairman, Arthur Levitt, for improved fund governance. Initially administered by Northwestern University School of Law, the Forum has recently converted to a non-profit educational membership corporation. The Forum will be administered by a Board of Directors and officers who are not employees, officers, shareholders or partners of any investment adviser to a Fund, and its Advisory Board will include mutual fund independent directors, corporate governance experts, investor advocates, industry representatives, attorneys, and academics. The Forum intends to obtain financial support primarily from reasonable membership dues and reasonable fees for participation in Forum-sponsored activities. This will enable the Forum to achieve its educational objectives to present conferences and programs and develop other resources for Fund independent directors, through the employment of necessary staff and reimbursement to Northwestern University School of Law or other organizations providing administrative services to the Forum. Intended to promote improved Fund governance in a number of ways, the Forum will provide the opportunity for Fund independent directors to exchange ideas, experiences and information and the Forum will also conduct continuing education programs and other activities designed to assist them in becoming more effective advocates of Fund shareholder interests.3 More specifically, proposed activities of the Forum include: (1) Providing a newsletter and e-mail communication vehicle for its members. The Forum also intends to create a web site, enabling director members to contact the Forum, as well as each other, and providing information and links to other educational sources. (2) Conducting annual policy conferences designed to identify and discuss major policy issues of importance to Fund directors.4 It is anticipated that the Staff will participate in Forum sponsored conferences and in presenting and discussing significant issues. (3) Offering executive education courses presented in small groups and on a regional basis. These courses will focus on both governance and operational problems faced by independent directors. Instructors and discussion leaders will include experienced Fund directors, academic experts and Staff members. (4) Functioning as an information resource for independent directors. Information will be gathered relating to contractual and business guidance, regulatory initiatives, measurement of financial and investment performance and other topics. (5) Serving as an occasional sponsor of research regarding important subjects of interest to all Fund directors and as a source of advice concerning the fulfillment by them of their fiduciary obligations. The Forum anticipates that, subject to approval by their Boards of Directors, the Funds will pay reasonable membership dues5 for their independent directors who elect to join the Forum, as well as related expenses6 of all independent directors who desire to participate in Forum activities.7 Although not eligible to become members of the Forum, other persons, including directors who are affiliated persons of their Fund’s investment adviser, would be welcome to participate in Forum-sponsored activities, but the expenses of those participants are not likely to be borne by the Funds. The Staff has recognized the “increasingly important role that funds play in Americans’ finances, and that independent directors play in protecting fund investors” and has observed that the issue of fund governance “has recently returned to the forefront.”8 In examining issues related to fund governance, the Commission hosted a Roundtable in 1999, the participants in which agreed that “fund governance could be improved to enable independent directors to better serve fund shareholders.”9 The Forum’s goal is to assist in attaining that end. As former Chairman Levitt observed: “I want to applaud the [Forum] . . . for your efforts and your commitment to preparing independent directors for their service to investors. By hosting conferences . . . and promoting other educational opportunities . . . you are taking a leading role in improving the quality of corporate governance.”10
The Role of Independent Directors
Independent directors have a special obligation to monitor potential conflicts of interest as they arise.11 In addition to their critical responsibility to consider, review and renew contractual relationships with their Fund’s advisers and underwriters and related distribution plans,12 independent directors also, among other duties, select their Fund’s independent accountants,13 oversee securities transactions involving affiliates to the extent permitted by various rules,14 review and approve fidelity bonds,15 and review and approve codes of ethics for their Funds and their advisers.16 Of course, independent directors also share special duties imposed upon Fund Boards, in general, such as establishing procedures for the good faith determination of the fair value of securities which are not readily marketable and satisfying themselves that their Fund’s adviser utilizes procedures designed to achieve “best execution” of portfolio transactions. Over the past decade, in particular, the Commission and the Staff have emphasized the role of independent directors in oversight of Fund management and have issued public statements, releases and reports on this subject.17 This increasing emphasis on independent director responsibilities was underscored by recently adopted rule amendments. In January 2001,18 the Commission adopted new rules and amendments to rules and forms intended to enhance further the independence and effectiveness of Fund independent directors. As part of that regulatory initiative, effective July 1, 2002, Fund boards must take the following actions (if they have not already done so) as a condition to reliance on certain widely used exemptive rules:
- ensure that independent directors constitute a majority of the Fund’s board of directors;
- ensure that independent directors select and nominate other independent directors; and
- determine that any legal counsel for the Fund’s independent directors (if they determine to retain counsel) is able to provide them with independent advice.
In 1999, the Investment Company Institute (“ICI”), the national trade association representing the U.S. investment company industry, created an Advisory Group on Best Practices for Fund Directors to identify and recommend the best practices used by Fund boards to enhance the independence and effectiveness of their independent directors. In its Report,19 the Advisory Group recommended, among other suggestions, that “new fund directors receive appropriate orientation” and that “all fund directors keep abreast of industry and regulatory developments.”20 The Report suggested that directors could accomplish this objective in many ways, including attendance at conferences and educational seminars. This recommendation is consistent with views expressed by the Staff. In a keynote address delivered to a recent ICI Workshop for New Fund Directors,21 Paul F. Roye, Director of the Division of Investment Management, also stressed the importance of education in the effective functioning of independent directors. In his remarks, Mr. Roye suggested that attendance at educational conferences can help independent directors gain a better understanding of the scope and nature of their duties and responsibilities. Because of their extensive and ever increasing responsibilities, the Forum believes that independent directors will find it useful to obtain comprehensive education, and insights into their responsibilities, from an independent source in order to assist them in their efforts to properly carry out their role as “watchdogs.” The purpose of the Forum is to serve as that independent non-profit forum and make that training available to all independent directors.22
Section 17(d) of the 1940 Act makes it “unlawful for any affiliated person of or principal underwriter for a registered investment company, . . . or any affiliated person of such a person or principal underwriter, acting as principal to effect any transaction in which such registered company . . . is a joint or a joint and several participant with such person, principal underwriter, or affiliated person, in contravention of such rules and regulations as the Commission may prescribe for the purpose of limiting or preventing participation by such registered . . . company on a basis different from or less advantageous than that of such other participant.”23 Rule 17d-1 thereunder states that “[n]o affiliated person of or principal underwriter for any registered investment company . . . and no affiliated person of such a person or principal underwriter, acting as principal, shall participate in, or effect any transaction in connection with, any joint enterprise or other joint arrangement or profit-sharing plan in which any such registered company . . . is a participant . . . unless an application regarding such joint enterprise, arrangement or profit-sharing plan has been filed with the Commission and has been granted by an order entered prior to the submission of such plan . . . to security holders for approval.” The Forum is concerned that the payment by Funds, pursuant to the authorization by their Boards of Directors, of the dues of their independent directors for membership in the Forum, as well as Forum-related expenses, could be deemed to constitute a joint transaction between a Fund and an affiliated person of the Fund for purposes of Section 17(d) and Rule 17d-1, because a participating director might be deemed to personally benefit in some way from the payment. We understand the Staff’s general position to be, however, that actions of Fund directors taken in their capacities as directors would not constitute joint arrangements for purposes of Rule 17d-1 because the requisite element of “combination” is not present. The Staff has observed that Fund directors commonly authorize the use of Fund assets to make payments from which the directors in some sense benefit, such as board meeting expenses, proxy expenses and the fees of legal counsel to independent directors, and that those payments could potentially be interpreted as a joint arrangement for the purposes of Rule 17d-1. The Staff has also acknowledged that “[a]s a practical matter . . . interpreting rule 17d-1 as encompassing such actions could impede, or in some case prevent, fund directors from taking actions that would be in the best interests of shareholders.”24 The Staff continued: The staff believes that it would be helpful to fund directors to clarify the meaning of “joint arrangement” in the context of actions taken in their capacities as directors. As a general matter, the staff believes that the actions of fund directors taken in their capacities as directors would not constitute joint arrangements for the purposes of rule 17d-1. Joint arrangements require “some element of combination” between the fund and its affiliate. The staff believes that, when a fund’s directors are acting on behalf of the fund in their capacities as fund directors, the requisite element of “combination” is not present. Indeed, in order for the requisite element of “combination” to be present, the staff generally believes that the joint arrangement must involve activities that are beyond the scope of the directors’ duties to the fund. . . . [W]hether rule 17d-1 applies turns on the nature of the transaction, not on its propriety or the affiliate’s motives, provided that the directors are acting within the scope of their duties.25 We believe that because participation in Forum activities is squarely within the scope of Fund independent directors’ duties to their Funds, payment by the Funds of the independent directors’ dues and expenses is not prohibited by Section 17(d) of the Act and Rule 17d-1 thereunder.26 The Staff has recognized that “[i]n addition to the requirements of federal law, directors must abide by standards of care prescribed by state statutory and common law.”27 Whether codified as a standard of conduct for directors, as exemplified by Section 8.30 of the Model Business Corporation Act, and jurisdictions adopting versions thereof,28 or enunciated in case law in jurisdictions such as Delaware, which has not codified a standard, an essential element of the directors’ duty of care is that the directors must act on an informed basis. Section 8.30(b) of the Model Business Corporation Act, the “duty of care element”29 of the standards of conduct for directors, provides: The members of the board of directors or a committee of the board, when becoming informed in connection with their decision-making function or devoting attention to their oversight function, shall discharge their duties with the care that a person in a like position would reasonably believe appropriate under similar circumstances. The Official Comment discusses the process of becoming informed as follows: The phrase `becoming informed,’ in the context of the decision-making function, refers to the process of gaining sufficient familiarity with the background facts and circumstances in order to make an informed judgment. Unless the circumstances would permit a reasonable director to conclude that he or she is already sufficiently informed, the standard of care requires every director to take steps to become informed about the background facts and circumstances before taking action on the matter at hand. The process . . . can involve consideration of information and data generated by persons other than legal counsel, public accountants, etc. retained by the corporation . . . for example, review of industry studies or research articles prepared by unrelated parties could be very useful. . . . There is no one way for `becoming informed,’ and both the method and measure – `how to’ and `how much’ – are matters of reasonable judgment for the director to exercise.30 Delaware has not codified a standard of care for directors. However, the components of this standard have been enunciated on numerous occasions by case law, in the context of the related business judgment rule. In Aronson v. Lewis,31 the Delaware Supreme Court stated that to invoke the protection of the business judgment rule, “directors have a duty to inform themselves, prior to making a business decision, of all material information reasonably available to them.”32 In summary, we believe that a Board’s authorization of the use of Fund assets, resulting in the Fund’s payment of Forum membership dues and Forum-related expenses, as described above, for independent directors would be within the scope, and in furtherance, of the independent directors’ duties to their respective Funds. Indeed, the primary goal of the Forum’s programs and other activities is to enable Fund independent directors better to perform these duties. We also believe that these principles apply to obviate any questions under Section 17(d) and Rule 17d-1, to the extent that two or more Funds with the same investment adviser might be deemed to be under common control and engaged in a joint transaction in sharing the Forum-related dues and expenditures of their independent directors. Therefore, a Board’s authorization of the payment, and a Fund’s resulting payment, of those dues and expenses does not entail a joint arrangement for purposes of Section 17(d) and Rule 17d-1.
Based on the foregoing facts and circumstances, we respectfully ask the Staff to concur that the payment by Funds, pursuant to the authorization of the Boards of Directors/Trustees, of dues of their independent directors for membership in the Forum, as well as Forum-related expenses, as described above, would not constitute a “joint arrangement” for purposes of Section 17(d) of the 1940 Act and Rule 17d-1 thereunder. Thank you for your attention to this matter. Please contact either one of us should you have any questions. Sincerely,
|________________________ David S. Ruder, Chairman (312) 503-8444||_________________________ Allan S. Mostoff, President (202) 261-3310|
1 The 1940 Act does not specifically define “independent directors.” In this letter, we use the term “independent director” to refer to directors and trustees who are not “interested persons” of the Funds or their investment advisers, as defined in Section 2(a)(19) of the 1940 Act, as amended. In an effort to control conflicts of interest between Funds and their investment advisers, Congress in Section 10(a) of the 1940 Act required that at least 40% of a Fund’s board be composed of independent directors. New conditions to a number of widely used exemptive rules require, effective July 1, 2002, that Funds relying on those rules have a majority of independent directors. 2 All of these payments for independent directors, both Forum members and non-members, presumably would be treated as Fund expenses for accounting and tax purposes. 3 It is generally acknowledged that Congress intended that independent directors serve as “watchdogs” in monitoring the activities of investment advisers and representing the interests of investment company shareholders. See Burks v. Lasker, 441 U.S. 471, 484 (1979) (quoting Tannenbaum v. Zeller, 552 F.2d 402, 406 (2d Cir. 1979)); Investment Trusts and Investment Companies: Hearings on H.R. 10065 Before the House Subcomm. on Interstate and Foreign Commerce, 76th Cong., 3d Sess. 109 (1940) (statement of David Schenker, Chief Counsel, Investment Trust Study, U.S. Securities and Exchange Commission). 4 The Forum has held two such conferences thus far, focussing on then current crucial issues for Fund directors. The tuition for each conference was $600 per person. 5 The dues will be fair and reasonable in light of the usual and customary dues charged by other similar membership organizations as well as industry-related trade associations. It is presently contemplated that membership dues would entitle members to have access to a Forum website, receive from the Forum periodic and special publications, participate in seminars or programs limited to Forum members, and receive a reduction in registration fees for attendance at Forum-sponsored conferences not otherwise limited to Forum members. 6 These expenses would consist of registration fees, travel and hotel expenses, and expenses for meals not otherwise covered by registration fees, incurred in connection with attendance at the Forum’s educational programs. 7 With respect to independent directors who serve on multiple boards of Funds under common management, the Forum anticipates that the payment by the Funds of their independent directors’ dues and expenses would be apportioned among the Funds in the complex in a fair and reasonable manner similar to the apportionment of other expenses which are not necessarily Fund-specific, such as general overhead items, directors’ and officers’ insurance, directors’ travel expenses related to attendance at Board meetings, and legal fees. 8 Interpretive Matters Concerning Independent Directors of Investment Companies, Release No. IC-24083, 64 Fed. Reg. 59,877, at 59,878 (Oct. 14, 1999). 9 Id. at 59,879. 10 Chairman Arthur Levitt, Address at the Mutual Fund Directors Education Council Conference (Feb. 17, 2000). 11 See supra note 3. 12 Burks, 441 U.S. at 482. In addition, Congress enacted section 15(c) (Investment Company Act Amendments of 1970, Pub. L. No. 91-547, 84 Stat. 1413) of the 1940 Act to strengthen the ability of the independent directors to review and evaluate management contracts. See also Rule 12b-1. 13 Section 32(a)(1). 14 See, e.g., Sections 10(f), 17(a), 17(e), and Rules 10f-3, 17a-7 and 17e-1. 15 Rule 17g-1. 16 Rule 17j-1(c)(1)(ii). 17 See, e.g., Roundtable on the Role of Independent Directors, SEC News Release, SEC News Digest 99-30 (1999); Division of Investment Management: Report on Mutual Fund Fees and Expenses (Dec. 2000); Audit Committee Disclosure, Release No. 34-42266 (Dec. 22, 1999). 18 See Role of Independent Directors of Investment Companies, Release No. IC- 24816 (Jan. 2, 2001) (“Adopting Release”). 19 Report of the Advisory Group on Best Practices for Fund Directors: Enhancing a Culture of Independence and Effectiveness (June 24, 1999). 20 Id. at 31. 21 Paul F. Roye, What Does it Take to be an Effective Independent Director of a Mutual Fund?, Keynote Address at ICI Workshop for New Fund Directors (Apr. 14, 2000) (transcript available at http://www.sec.gov/news/speeches/spdh364.htm). 22 As indicated earlier in this letter, other persons, including directors who are interested persons under the 1940 Act, would also have access to Forum conferences and be permitted to purchase publications and other materials. 23 Section 2(a)(3) of the 1940 Act, in relevant part, defines “affiliated person” as: ” . . . (C) any person directly or indirectly controlling, controlled by, or under common control with, such other person; (D) any officer, director, partner, copartner, or employee of such other person; (E) if such other person is an investment company, any investment adviser thereof or any member of an advisory board thereof . . .” 24 See supra note 8, at 59,881. 25 Id. at 59,881-2; see also Rule 17d-1(d)(7) which allows a Fund to obtain and pay for “errors and omissions” insurance to cover expenses incurred by directors and officers in the event of litigation, despite the fact that those persons might benefit personally from that insurance. As amended in January 2001, this exemption is available only if the joint insurance policy does not exclude coverage for litigation between the investment adviser and the independent directors. See Adopting Release, supra note 18. 26 In a somewhat similar vein, it is our understanding that most Funds currently pay annual membership dues to the ICI, as well as all expenses their independent directors may incur in attending ICI and other industry related conferences. The Staff has not objected to this practice, nor to the sharing of those expenses among Funds with a common investment adviser. 27 See supra note 8, at 59,878. 28 See, e.g., Md. Code Ann., Corps. & Ass’ns ¬ß 2-405.1(a) (2001); Mass. Gen Laws Ann. ch. 156B, ¬ß 65 (West 2001). Maryland and Massachusetts are jurisdictions in which many investment companies are organized. 29 Model Bus. Corp. Act Ann. ¬ß 830 cmt. (1998/99 Supp.). 30 Id. 31 473 A.2d 805 (Del. 1984). 32 Id. at 812; See also Cede & Co. v. Technicolor, Inc., 634 A.2d 345, 367 (Del. 1993) (“The duty of the directors of a company to act on an informed basis, as that term has been defined by this Court numerous times, forms the duty of care element of the business judgment rule.”).