March 19, 1996
TO: COMPLIANCE COMMITTEE No. 4-96
SEC RULES COMMITTEE No. 19-96
RULE 17g-1 TASK FORCE
RE: INSTITUTE’S PROPOSAL TO AMEND RULE 17g-1
______________________________________________________________________________
Attached is the Institutes proposal to amend the fidelity bonding rule, Rule 17g-1,
which has been submitted to the Securities and Exchange Commission staff for their
consideration. The proposal, among other things, would update Rule 17g-1 to establish
minimum coverage requirements for a fund complex (rather than for individual funds, as is
currently required) and place a cap of $100 million on the amount of required fidelity bond
coverage for a joint insured bond that names as insureds members of the same fund complex.
In addition, the schedule of bonding requirements: (1) would smoothe the breakpoints in the
current schedule by incorporating a percentage based breakpoint schedule; (2) would eliminate
the marginal rate jump at the $1 billion point of the schedule (and, instead, maintain a declining
rate of coverage as assets increase), and (3) would make clear the coverage required at specific
dollar points on the schedule.
The proposal would amend Rule 17g-1 in several other respects, including (1) requiring
fidelity bonds to be issued on an each and every occurrence basis, (2) permitting all entities
within an investment company complex that are primarily engaged in the business of
providing investment management or investment advice (including ancillary services such as
research support services) to be named on the same joint bond, (3) eliminating the requirement
that independent directors approve the portion of the premium to be paid by a fund prior to
paying any premium under a joint bond, and, instead, requiring the independent directors to
consider the premium to be paid along with several other factors in their annual review of the
bond, and (4) simplifying and modernizing the rules filing and notification procedures.
Dorothy M. Donohue
Assistant Counsel
Attachment (in .pdf format)