Your letter dated December 13, 2006 requests the interpretive views of the Divisions of Corporation Finance and Investment Management regarding the application of the exemption provided by Rule 16b-3 under the Securities Exchange Act of 1934 (Exchange Act) to persons subject to Exchange Act Section 16(b) liability, as officers and directors, pursuant to Section 30(h) of the Investment Company Act of 1940.

In particular, you ask that we concur with your view that an employee benefit plan sponsored by the investment adviser, or an affiliated person of an investment adviser, to a registered closed-end management investment company that offers equity securities of the registered closed-end management investment company to plan participants is an "employee benefit plan sponsored by the issuer" within the meaning of Exchange Act Rule 16b-3.

You state your belief that the approvals of the shareholders, the board of directors, or a committee of directors composed solely of two or more Non-Employee Directors, that are conditions for the exemptions applicable to acquisitions provided by Rules 16b-3(d)(1) and 16b-3(d)(2) and dispositions provided by Rule 16b-3(e), would be satisfied by the approval of the shareholders, the board of directors, or a committee of two or more Non-Employee Directors (as defined in Rule 16b-3(b)(3)(ii)) of the closed-end management investment company whose equity securities are acquired or disposed.

Section 30(h) of the Investment Company Act provides that:

Every person who is directly or indirectly the beneficial owner of more than 10 percentum of any class of outstanding securities (other than short-term paper) of which a registered closed-end company is the issuer or who is an officer, director, member of an advisory board, investment adviser, or affiliated person of an investment adviser of such a company shall in respect of his transactions in any securities of such company (other than short-term paper) be subject to the same duties and liabilities as those imposed by section 16 of the Securities Exchange Act of 1934 upon certain beneficial owners, directors, and officers in respect of their transactions in certain equity securities.

Investment Company Act Rule 30h-1 provides that the rules under Exchange Act Section 16 apply to any duty, liability or prohibition imposed with respect to a transaction involving any security of a registered closed-end company under Investment Company Act Section 30(h). Rule 16b-3 exempts from Section 16(b) liability transactions between an issuer and its officers or directors.

Rule 16b-3(a) provides that:

A transaction between the issuer (including an employee benefit plan sponsored by the issuer) and an officer or director of the issuer that involves issuer equity securities shall be exempt from section 16(b) of the Act if the transaction satisfies the applicable conditions set forth in this section.

Our views regarding your question are as follows:

• For a registered closed-end management investment company, a plan sponsored by its investment adviser (or an affiliated person of its investment adviser) that offers plan participants equity securities of the registered closed-end management investment company is "an employee benefit plan sponsored by the issuer" for purposes of applying Exchange Act Rule 16b-3 to Section 30(h).
   
• The approvals of the shareholders, the board of directors, or a committee of directors composed solely of two or more Non-Employee Directors, that are conditions for the exemptions applicable to acquisitions from the issuer provided by Exchange Act Rules 16b-3(d)(1) and 16b-3(d)(2) and dispositions to the issuer provided by Exchange Act Rule 16b-3(e), would be satisfied only by the approval of the shareholders, the board of directors, or a committee of two or more Non-Employee Directors (as defined in Exchange Act Rule 16b-3(b)(3)(ii)) of the closed-end management investment company whose equity securities are acquired or disposed.
   
• Persons who are directors of the issuer closed-end management investment company, as defined in Investment Company Act Section 2(a)(12), would be eligible for the Rule 16b-3 exemption as directors.
   
• The same persons who are officers of the issuer closed-end management investment company or its investment adviser, applying the Exchange Act Rule 16a-1(f) definition of "officer," for purposes of identifying officers of a registered closed-end investment company and its investment adviser who are subject to the liability provisions of Exchange Act Section 16(b) pursuant to Investment Company Act Section 30(h), would be eligible for the Rule 16b-3 exemption as officers. See the Division of Investment Management's letter to the Investment Company Institute dated June 12, 1991.

Because these positions are based on the representations made to the Divisions in your letter, it should be noted that any different facts or representations might require a different conclusion.

Incoming Letter:

The Incoming Letter is in Acrobat format.

http://www.sec.gov/divisions/corpfin/cf-noaction/babson121406-16b3.htm