BOARD OVERSIGHT OF DISCOUNT CONTROL MECHANISMS JUNE 21, 2011

Transcription

1 CLOSED END END INVESTMENT COMPANIES JUNE 21, 2011 P R E S E N T E D B Y

2 I. Regulatory requirement: e e Prospectus dscosue disclosure for all offerings: Shares of closed end investment companies frequently trade at a discount to their net asset value. II. Underwriters requirements: A. Discretionary actions to be considered: share repurchases, periodic tender offers or open ending B. Mandatory actions: tender offers or proposals to open end must be submitted to shareholders if shares trade at stated discounts for certain specified periods III. Statutory requirements: none under Federal or state law

3 IV. Board Duties: A. Supervision and oversight of management B. Directthemanagementofbusiness the oraffairs ofclosed end end investment company which may not include an obligation to deal with discounts unless specifically obligated at time of IPO or other offering V. No Shareholder Right of Action to compel Board to deal with controlling of discounts

4 VI. Why would a Board want to, as part of its oversight, oesg,oeseedscou oversee discount or consider or adopt discount control mechanisms ( DCM s )? A. Good corporate governance B. Best practices C. Exercise of duty of loyalty or duty of care D. Defensive measures to ward off activists E. Forced into taking actions by activists through proxy contests and shareholder h proposals F. Self preservation of Board

5 VII. What is an acceptable ab e level eeof a discount? dscou A. Equity Funds B. Fixed IncomeFunds

6 VIII. Possible Discount Control Mechanisms A. Repurchase offers over the market based on current discount percentage (requires disclosure of policy in semi annual and annual reports to shareholders) B. Marketing efforts to promote Fund C. Lifeboat Provisions D. Periodic tender offers (Interval Funds) E. Monthly Distribution Programs F. Quarterly Distribution Programs G. Replacement of Portfolio Manager or Investment Adviser H. Change of Investment Objective I. Open end or merge with an open end fund J. Liquidation id the last resort

7 IX. Benefits of Discount Control Mechanisms A. Shares trading at NAV or a Premium B. Contented Shareholders C. Thwarting Efforts of Activists D. Preservation of Fund E. Self preservation of Board

8 X. Questions

9 S P E A K E R P R O F I L E Thomas R. Westle, Partner New York, NY v f TWestle@BlankRome.com Thomas Westle focuses his practice on corporate and securities law. He has extensive experience in legal issues relevant to registered and unregistered investment companies and investment advisers. His client services include: Registration, regulation, and governance of investment companies including open end, closed end, and business development companies as well as investment advisers Creation and organization of private investment funds and hedge funds Representation of independent Boards of Directors / Trustees Preparation of SEC exemptive applications and no action letters Financing transactions relating to mutual funds Representation of investment companies in SEC enforcement actions M W tl i f tl tdi th fi i l t lf d d hd f di Mr. Westle is frequently quoted in the financial press on mutual fund and hedge fund issues. He has received the highest possible rating from Martindale Hubbell.