SEC Division of Investment Management staff letter: G.T. Global Growth Series et al. — SEC — US

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FEB - 2 /99

p Our Ref. No. 95-672-CC

G.T. Global Growth
Series et al. RESPONSE OF THE OFFICE OF CHIEF COUNSEL File No. 811-2699 DIVISION OF INVESTMENT MAAGEMENT

Your letter of November 1, 1995 requests our assurance that

we would not recommend enforcement action to the Commission if

certain registered investment companies (the "Funds") advised by

G.T. Capital Management, Inc. (IIG.T. Capital") do not treat Mr.

Frank S. Bayley, a director or trustee of each of the Funds, as

an II interested person" of the Funds under subparagraphs (A) (iii) and (B) (iv) of Section 2 (a) (19) of the Investment Company Act of 1940 (the "1940 Act,,).l G.T. Capital and G.T. Global Financial Services, Inc. (IIG.T. Financial II), which serves as principal underwriter for certain of the Funds, are indirect, wholly owned subsidiaries (as defined in
Section 2 (a) (43) of the 1940 Act) of the Prince of Liechtenstein
Foundation (the II Foundation "). The Bank in Liechtenstein

Bank ") also is a wholly owned subsidiary

of the Foundation. The Bank thus is under common control with

the Funds' adviser and the principal underwriter of certain of

the Funds.

Aktiengesellschaft (the II

In addition to being a director or trustee of each of the

Funds, Mr. Bayley is a partner in the San Francisco office of the

law firm of Baker & McKenzie. Baker & McKenzie's Hong Kong

off ice has rendered and may continue to render legal services,

primarily regarding tax matters, to the Bank. You state that the

legal work performed for the Bank by Baker & McKenzie was not

related, directly or indirectly, to G.T. Capital, G.T. Financial, 2 or the Funds. You further state that Mr. Bayley has no

professional or business relationship with the Funds, G.T

Capital, G.T. Financial, or any of their affiliates, other than

his positions as a director or trustee of the Funds.

Section 10 of the 1940 Act generally permits no more than
60% of the members of an investment company's board of directors 1 The request is made on behalf of the following Funds: G.T. Global Growth Series, G. T. Global Variable Investment Series, G. T. Global Variable Investment Trust, G. T. Global Developing Markets Fund, Inc., G.T. Investment Funds, Inc., G.T. Investment Portfolios, Inc., G.T. Greater Europe Fund,

Global High Income Portfolio, Global Investment Portfolio,

and Growth Portfolio.

2 Mr. Bayley has represented that the fees paid by the Bank to Baker & McKenzie amounted to less than 1/300 of 1% of the firm's total revenue for" the past year, and that the firm currently anticipates that the percentage of its total revenue that is received from the Bank will not exceed this level in the future.

to be interested persons of the investment company. Section 2 (a) (19) (A) (iii) of the 1940 Act includes within the definition of II interested person II of an investment company lIany interested person of any investment adviser of or principal underwriter for

such company." Section 2 (a) (19) (B) (iv) in turn defines II interested person" of an investment adviser of or principal underwriter for any investment company to include "any person or

partner or employee of any person who at any time since the

beginning of the last two completed fiscal years of such

investment company ~as acted as legal counsel for such investment

adviser or principal underwriter. II Mr. Bayley has never acted as legal counsel for the Funds'

investment adviser or principal underwriter, nor is he the

parLner or the employee of a person who has provided such legal

counsel. You nonetheless request our view with respect to

whether the Funds should treat Mr. Bayley as an interested person

because of a position taken by the staff in Vestaur Securities,

Jan. 4, 1973) (IIVestaur"). In Vestaur, the

staff indicated that a person (or the partner of a person) who

had acted as counsel to a bank that was under common control with

a fund's adviser would be considered an interested person of the

Inc. (pub. avail.

fund wi thin the meaning of Section 2 (a) (19) .3 You believe instead that Section 2 (a) (19) (B) (iv) should be interpreted in accordance with its plain meaning and therefore should not be

extended to a person (or the partner of a person) who has served

as legal counsel to an affiliate of a fund's adviser or principal

un erwri ter. d ' 4

3 The staff stated without explanation that II (f) or the purpose of this analysis, we consider the (a) dviser and the (b) ank

as one entity, II but nonetheless granted no-action relief on

policy grounds, provided that neither the director nor his

law firm would represent the bank in the future. In

contrast to Vestaur, the staff recently stated that, absent

substantial policy reasons, we generally will not consider

aff iliated companies to be a single entity. See Salomon

Brothers, Inc. (pub. avail. May 25, 1995). We note,

however, that if intermediaries were created for the purpose of altering a person's status under Section 2 (a) (19), the staff would consider whether there was a violation of

Section 48 (a) of the 1940 Act.

4 In this regard, you ask the staff to compare the language of subparagraph (B) (iv) of Section 2 (a) (19) to other provisions of this section, such as subparagraphs (A) (v) and (B) (v) , which expressly include affiliated persons of a registered

broker or dealer within the definition of interested person.

Moreover, other provisions of the 1940 Act i such as Sections

17 (a) and 17 (j), expressly apply to affiliated persons of (continued. . . )

2
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The legislative history of Section 2 (a) (19) supports the

conclusion that subparagraph (B) (iv)' does not include a person in Mr. Bayley's position, particularly when the statutory language

ultimately enacted is compared with the recommendations made in

the Commission's Report on The Public Policy Implications of

Investment Company Growth (the II PPI Report II) .5 The PPI Report recommended adding Section 2 (a) (19) because certain "close

relationships (with fund management) derogate from directors'

ability to represent effectively the interests of shareholders. 116

While the PPI Report did not specifically recommend that the

definition of interested person include legal counsel to the

fund, its adviser, or principal underwriter, it did recommend a

general provision that would have included within the definition II any person who. . has, or has had within the past 3 years, any material business or professional relationship with

af f il iated persons (of the fund) and their affiliated persons. 117

Congress appears to have implemented this recommendation in

the following manner. Persons (and partners and employees of

persons) who serve as legal counsel to the fund, its adviser, or

its principal underwriter are classified as interested persons in

subparagraphs (A) (iv) and (B) (iv). Those individuals who have

other types of material business or professional relationships

wi th the fund, its adviser or its principal underwriter are

covered by subparagraphs (A) (vi) and (B) (vi) of Section 2 (a) (19) . These provisions authorize the Commission to issue orders

declaring a person to be an interested person of a fund or its

investment adviser or principal underwriter because the person

has or has had a material business or professional relationship

with the fund, adviser or underwriter, or their controlling

persons.8 Congress required the Commission to issue a formal order before a person can be considered an interested person

because of his or her material business or professional

relationships, to lIeliminate any danger of inadvertent violations

4 ( . . . continued) advisers and principal underwriters for registered

investment companies, as well as to the advisers and

underwri ters themselves.

5 Securities and Exchange Commission, Report on the Public Policy Implications of Investment Company Growth, H.R. Rep. No. 2337, 89thCong., 2dSess. (1966). 6 Id. at 334.

7 Id.
8 Section 2 (a) (19) (A) (vi) and (B) (vi)

of the requirements of the (1940 Act) 119 which were likely because

of the subj ecti ve nature of the standard. 10 Therefore, while Congress determined through subparagraph (B) (iv) to classify as

interested persons all persons (and partners and employees of

persons) who serve as legal counsel to the fund, its adviser or

principal underwriter, we believe that persons who serve as legal

counsel to an affiliate of a fund's adviser or principal

underwriter fall outside subparagraph (B) (iv); the classification

of such persons is more appropriatel¥ determined by reference to

subparagraph (B) (vi) of the section. 1

In light of the foregoing, and based on the facts and

representations set forth in your letter, we would not recommend

enforcement action to the Commission if the Funds do not treat Mr. Bayley as an interested person under subparagraphs (A) (iii) aDd (B) (iv) of Section 2(a) (19).12 You should note that

9 S. Rep. No. 184, 91st Cong., 1st Sess. 34 (1969). 10 See Mutual Fund Legislation of 1967: Hearinqs on S. 1659 Before the Senate Comm. on Banking and Currency, 90th Cong., 1st Sess. 314-16 (1967) (Exhibit A to statement of Robert L. Augenblick, President and General Counsel, Investment Company Institute) (raising concerns about vagueness of the PPI Report's recommended provision on material business relationships) . 11 The staff believes that it generally is not appropriate to

respond to no-action requests under subparagraph (B) (vi) of Section 2(a) (19). Better Investing Fund, Inc. (pub. avail. June 15, 1988); Daniel Calabria (pub. avail. Sept. 12, 1984). We therefore express no view whether Mr. Bayley

would be considered an interested person under subparagraph

(B) (vi) .
12 We note that courts may consider the genuine independence of

a board of directors, apart from the directors'

classification under Section 2 (a) (19), in determining

whether there has been a breach of fiduciary duty by the

fund's management wi thin the meaning of Section 36 of the 1940 Act. See Joel H. Goldberg, Disinterested Directors, Independent Directors and the Investment CompanY Act of

1940,9 Loy. u. Chi. L.J. 565,567,579-80 (1978)

(discussing Tannenbaum v. Zeller, 552 F. 2d 402 (2d Cir.) , U.S. 934 (1977)).

4
cert. denied, 434

different facts or circumstances might require a different

conclusion.
Eric C. Freed

~¿.~~
Special Counsel

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KIRKPATRICK & LOCKHART LLP AfJ /0/ 10 AL-f,_,w=~~ SEON ;i(Q) (l q1,'."',:~ SOUT LOBBY, Nß FLOOR RULE -"" ~ -~",,,,,.-¡-.' .~ 1800 M ST N.VI WASHINGTON, DC 20036-5891 \ ~~:;1L /J ¿Ii L ?lro 'TLEHONE (202) 778-90 FACSIMn. (202) 778.9100 ARTH J. BROWN (202) 718-90 broj~k1.com November 1, 1995

1940 Act Section 2 (a) (19)
Off ice of Chief Counsel ~
Division of Investment Management

Securities and Exchange Commission

Judiciary Plaza

450 Fifth street, N.W.

Washington, D.C. 20549

Re: No-Action Request on behalf of

G. T. Global Growth Series, et al.

Dear sir ¡Madam:

On behalf of G.T. Global Growth Series, G.T. Global Variable

Investment Series, G.T. Global Variable Investment Trust, G.T.

Global Developing Markets Fund, Inc., G.T. Investment Funds,

Inc., G.T. Investment Portfolios, Inc., G.T. Greater Europe Fund,

Global High Income Portfolio, Global Investment Portfolio, .

Growth Portfolio (referred to hereinafter collectively as the

"Funds" and individually as a "Fund") and Frank S. Bayley

(referred to' hereinafter collectively as the "Applicants"), we

hereby request that the Staff of the Division of Investment

Management ("Staff") advise us that it will not recommend that

the Securities .Çind Exchange Commission (the "Commission") take

enforcement action against the Funds, under Section 2 (a) (19) of the Investment Company Act of 1940, as aInended ("1940 Act"), if

the Funds were to. treat Mr. Bayley as an independent

director ¡trustee and that the Staff confirm our interpretation

that under the facts presented, the Funds can treat Mr. Bayley as

a director¡trustee who is not an interested person of the Funds

as that term is defined in Section 2 (a) (19) of the 1940 Act. .

DC-226393.1

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KIRKPATRICK & LOCKHART LLP
Securities and Exchange Commission

November 1, 1995 .

\
I. Backqround

G.T. Glòbal Growth Series,. G.T. Global Variable Investment Series, G.T. Global Variable Investment Trust, G.T. Investment

Funds, Inc., G.T. Investment portfolios; Inc., Global "High Income

portfolio, Global Investment Portfolio, and Growth Portfolio are

open-end management investment companies registered under the

1940 Act. G.T. Greater Europe Fund and G.T. Global Developing

Markets Fund, Inc. are closed-end management investment companies

registered under the 1940 Act. G.T. Capital Management, Inc.

( II G. T . Capital" ) serves as investment adviser for each Fund. G.T. Global Financial Services, Inc. (IlG.T. Financial") serves as the distributor or principal underwriter for .those open-end

companies that publicly offer and sell their shares on an ongoing

Qasis. G.T. Capital and G. T. Financial are each part of the G.T. Group, .a global investment advisory organization. G.T.

capital. and G.T. Financial are wholly owned by G.T. Capital

Holdings, Inc., which is in turn wholly owned by G. T. Holding

-uxembourg S.A. G.T. Holding Luxembourg S.A. is wholly owned by

,IL GT Group Limited, which is in turn 99.7% owned by the Prince

of Liechtenstein Foundation. The Prince of Liechtenstein

Foundation is wholly owned by the Princely Family of Liechtenstein. Frank S. Bayley has served as either a director or trustee

(referred to hereinafter collectively as a "directorll) for each

Fund since 1984, or as of the commencement of operations in the

case of Funds that were organized after 1984. Throughout his

tenure, the Funds have treated Mr. Bayley as an independent

director because he is not an "interested person" of the Funds as

that term is defined in section 2 (a) (19) of the 1940 Act. Mr.

Bayley is also a partner of Baker & McKenzie, a law firm with

offices worldwide. Mr. Bayley joined the firm's San Francisco,

California, office as a partner in 1986. Baker & McKenzie is the

world's largest law firm with more th~n fifty offices and more

than 500 partners. As discussed more fully below, the law firm's

Hong Kong off ice has acted and may continue to act as legal

counsel to the Bank in Liechtenstein Aktiengesellschaft ("Bank in

Liechtenstein"). Bank in Liechtenstein is controlled by the

Prince of Liechtenstein Foundation, which, as noted above, also

controls BIL G.T. Group Limited.

Commencing in December 1994, Baker & McKenzie's Hong Kong

off ice rendered legal services to Bank in Liechtenstein pursuant

to a limited engagement regarding various matters primarily

involving tax advice for clients or potential clients of the Bank

in Liechtenstein. Baker & McKenzie's Hong Kong office may render

similar legal services to Bank in Liechtenstein in the future,

although the firm has not been retained for any such engagement.

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KIRKPATRICK & LOCKHART LLP
Securities and Exchange Commission November 1, 1995
Page 3 ,.,
Mr. Bayley has advised the Boards of Directors/Trustees

(referred to hereinafter collectively as the "Boards") of the

Funds that he is not involved in, in any way responsible for, or,

other than in the most general terms, familiar with, any matters

relating to Baker & McKenzie's representation of Bank'in

Liechtenstein. All such matters were, or. are, handled by another

partner who is not a partner at the same office in whic~ Mr.

Bayley works. Mr. Bayley did not help the firm's Hong Kong

off ice obtain Bank in Liechtenstein as a client. Mr. Bayley was

not even aware that Bank in Liechtenstein was in the process of

retaining the Îirm's Hong Kong office. The legal work performed

by his firm was unrelated directly or indirectly to G.T. Capital,

G. T. Financial or the Funds. Mr. Bayley has represented .that the

fees billed and paid to Baker & McKenzie's Hong Kong office by

Bank in Liechtenstein represented or are expected to represent

less than 1/300 of 1% of the firm's total revenues for the past

year and that the office currently anticipates that the

percentage of the firm's total revenues received from Bank in

Liechtenstein in future years will not exceed 1/300 of 1% of the

firm's total revenues. Mr. Bayley'S financial interest in the

revenues of Baker & McKenzie is less than 1/10 of 1%.

Mr. Bayley has no professional or business relationships with Bank in Liechtenstein or any of its affiliates other .than

his position as a director of the Funds. Furthermore, Mr. Bayley

has never participated in Baker & McKenzie's representation of

Bank in Liechtenstein. Therefore, there has never been any

direct contact between Bank in Liechtenstein and Mr. Bayley

except in connection with Mr. Bayley's service as a director of

the Funds.

II. Discussion

section 2 (a) (19) (A) of the 1940 Act defines "interested
personll with respect to an investment company, as relevant here,

to include:

(iii) any interested person of any investment adviser

of or principal underwriter for such company.

section 2 (a) (19) (B) of the 1940 Act defines llinterested person" with respect to an investment adviser of or principal underwiter
for any investment company to include:

(i v) any person or partner or employee of any person

who at any time' since the beginning of the last two

completed fiscal years of such investment company has

acted as legal counsel for such investment adviser or

principal underwriter.

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KIRKPATRICK & LOCKHART LLP

~ecurities and Exchange commission

November i, 1995

.
Mr. Bayley does not fall within the terms of either of these

statutory provisions. Neither Mr. Bayley nor any of the law

offices of Baker & McKenzie has at any time acted as legal

counsel for the investment adviser to the Funds (G.T. capital) or

the principal underwriter for those open-end companies that

publicly offer and sell their shares on an ongoing basis (G.T.

Financial). Thus, Mr. Bayley is neither a "person" nor a

"partner. . . of any person" who has acted as legal counsel for

G.T. capital or G.T. Financial.

In light of the Staff's previous interpretations of section 2 (a) (19), we seek the Staff's confirmation that Mr. Bayley can continue to be treated as a Fund director who is not an

11 interested person 11 of any of the Funds. In particular, the

Staff has previously taken the position that a director of an

investment company who has provided, or is a partner of someone

who h~s provided, legal service~ to a person unde~ common control

wi th the investment adviser of the investment company, and

therefore is an affiliated person of the investment adviser as

hat term is used in section 2(a)(3)(C) of the 1940 ActY, may be

Jeemed an interested person of the investment company within the

meaning of section 2 (a) (19) (A) (iii).Y Under such a rationale,

Mr. Bayley could be considered an "interested person" of the

Funds, G.T. Capital and G.T. Financial merely because Baker &

McKenzie's Hong Kong Office has provided legal services, and may

continue to do so in the future, to an entity which is an

lI "Affiliated Person" of another person means (A) any person

directly or indirectly owning, controlling, or holding with power

to vote, 5 per centum or more of the outstanding voting

securities of such other person; (B) any person 5 per centum or

more of whose outstanding voting securities are directly or

indirectly owned, controlled, or held with power to vote, by such

person; (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 i and (F) if such other person is an

unincorporated investment company not having a board of

directors, the depositor thereof.

Y Vestaur Securities, Inc. 1973 SEC No-Act Lexis 3780 (Jan. 4,

1973) .

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KIRKPATRICK & LOCKHART LLP

Securities and Exchange commission

November 1, 1995

\ affiliated person, or an affiliated person of an affiliated

person, of the Funds, G.T. Capital and G.T. Financial.~

It is our opinion that the express. terms of section 2 (a) (19)

do not reach such relationships. Further, we believe. that Congress did not intend for the term "interested person" of an

investment company. to encompass them. The 1970 Amendments to the

1940 Act devised .the term "interested person" of an investment

company and of an investment adviser or principal underwriter to

cover the many individuals who are affiliated persons of the

investment company and other individuals who might not be

independent of the investment company's management. For example,
section 2 (a) (19) includes within the category of persons definéd
as "interested persons" of an investment company those who are

registered as broker-dealers or affiliated persons of such

broker-dealers. Also included are persons who have acted as

legal counsel to the investment company, its investment adviser persons. The fact or principal underwriter and partners of such

~hat the 1970 Amendments did not include persons, or partners or

~mployees . of such persons, who have acted as legal counsel for

affiliated persons of an investment company , its investment

adviser or principal underwriter when that formulation was used

elsewhere in section 2 (a) (19), strongly supports the proposition that Congress did not intend for section 2 (a) (19) to reach that far. The legislative history of the 1970 Amendments itself does

not reflect any policy which calls for extending the definition

of "interested persons" to include persons other than those

having "strong ties" to the mapagers of an investment company or

"substantial business or professional relationships with the

investment company or its adviser-underwriter. .." (S. Rep.

No. 184, 91st Cong., 1st Sess. 32 (1969)). Neither Mr. Bayley

nor any partner of any office of Baker & McKenzie has "strong

ties" to G.T. capital or G.T. Financial, or "substantial business

or professional relationships" with these entities or the Funds

other than as a director of the latter. Therefore, there is no

ground on which to base a belief that Baker & McKenzie's

representation of Bank in Liechtenstein has impaired or would

impair in any manner or otherwise affect Mr. Bayley's ability to

exercise sound independent business judgment in the fulfillment

¥ We note that one fund complex, following the issuance of the

Vestaur letter, sought and obtained exemptive relief from section 2 (a) (19) for a director whose law firm provided legal services to an insurance trade group which included the investment adviser to the fund. IDS Mutual, Inc., et al., 1940 Act Release Nos. 14526

(May 17, 1985) and 14573 (June 12, 1985).

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. . KIRKPATRICK & LOCKHART LLP
,ecurities and Exchange commission

November 1, 1995

\ of his fiduciary duties and obligations as an independent

director of the Funds.

III. Conclusion

It is respectfully submitted that section 2 (a) (19) (A) (iii) cannot be read to include Mr. Bayley as an interested person of

tha Funds by reason of the aforesaid facts and that Congress did

not intend sections 2(a) (19) (A) (iii) and 2(a) (19) (B) (iv) be construed in such a way as to deem Mr. Bayley an interested

person of the Funds i G. T. capital or G. T. Financial. Moreover,

Mr. Bayley does not. have the kind of ties to the investment

manager or underwriter of the Funds that were of concern to

Congress in 1970. Accordingly, we respectfully request that the

Staff assure the Funds that it will not recommend that the

Commission take enforcement action against the Funds if the Funds

were to. continue to treat Mr. Bayley as an independent director

with respect to section 2 (a) (19) of the 1940 Act and confirm our

interpretation that under .the facts presented Mr. Bayley is not

1n interested person of the Funds as that term is defined in

3ection 2 (a) (19) of the 1940 Act and that the Funds can treat him accordingly. Should you have any questions regarding this request,

please contact the undersigned at (202) 778-9046.

Sincerely, - 1J/J.1
O~ rP. I3Ao~
Arthur J. Brown