[Federal Register Volume 69, Number 52 (Wednesday, March 17, 2004)]
[Proposed Rules]
[Pages 12752-12770]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-5951]
[[Page 12751]]
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Part III
Securities Exchange Commission
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17 CFR Parts 239, 249, 270 and 274
Disclosure Regarding Portfolio Managers of Registered Management
Investment Companies; Proposed Rule
Federal Register / Vol. 69, No. 52 / Wednesday, March 17, 2004 /
Proposed Rules
[[Page 12752]]
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SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 239, 249, 270 and 274
[Release Nos. 33-8396; 34-49398; IC-26383; File No. S7-12-04]
RIN 3235-AJ16
Disclosure Regarding Portfolio Managers of Registered Management
Investment Companies
AGENCY: Securities and Exchange Commission.
ACTION: Proposed rule.
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SUMMARY: The Securities and Exchange Commission is proposing amendments
to its forms under the Securities Act of 1933, the Securities Exchange
Act of 1934, and the Investment Company Act of 1940 to improve the
disclosure provided by registered management investment companies
regarding their portfolio managers. The proposals would extend the
existing requirement that a registered management investment company
provide basic information in its prospectus regarding its portfolio
managers to include the members of management teams. The proposals
would also require a registered management investment company to
disclose additional information about its portfolio managers, including
other accounts they manage, compensation structure, and ownership of
securities in accounts they manage.
DATES: Comments should be submitted on or before May 21, 2004.
ADDRESSES: Comments may be submitted electronically or by paper.
Electronic comments may be submitted by: (1) electronic form on the SEC
Web site (http://www.sec.gov) or (2) e-mail to [email protected].
Mail paper comments in triplicate to Jonathan G. Katz, Secretary,
Securities and Exchange Commission, 450 Fifth Street, NW., Washington,
DC 20549-0609. All submissions should refer to File No. S7-12-04; this
file number should be included on the subject line if e-mail is used.
To help us process and review your comments more efficiently, please
use only one method. The Commission will post all comments on the
Commission's Internet Web site (http://www.sec.gov). Comments are also
available for public inspection and copying in the Commission's Public
Reference Room, 450 Fifth Street, NW., Washington, DC 20549. We do not
edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly.
FOR FURTHER INFORMATION CONTACT: Sanjay Lamba, Attorney, or Paul G.
Cellupica, Assistant Director, Office of Disclosure Regulation,
Division of Investment Management, (202) 942-0721, at the Securities
and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-
0506.
SUPPLEMENTARY INFORMATION: The Securities and Exchange Commission
(``Commission'') is proposing for comment amendments to Form N-1A,\1\
Form N-2,\2\ and Form N-3,\3\ registration forms used by management
investment companies to register under the Investment Company Act of
1940 (``Investment Company Act'') and to offer their securities under
the Securities Act of 1933 (``Securities Act''); and amendments to Form
N-CSR \4\ under the Investment Company Act and the Securities Exchange
Act of 1934 (``Exchange Act''), the form used by registered management
investment companies to file certified shareholder reports with the
Commission.
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\1\ 17 CFR 239.15A and 274.11A.
\2\ 17 CFR 239.14 and 274.11a-1.
\3\ 17 CFR 239.17a and 274.11b.
\4\ 17 CFR 249.331 and 274.128.
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Table of Contents
I. Background
II. Discussion
A. Identification of Portfolio Management Team Members
B. Disclosure Regarding Other Accounts Managed, Potential Conflicts
of Interest, and Policies and Procedures to Address Conflicts
C. Disclosure of Portfolio Manager Compensation Structure
D. Disclosure of Securities Ownership of Portfolio Managers
E. Removal of Exclusion for Index Funds
F. Disclosure of Availability of Information
G. Amendment of Form N-CSR
H. Compliance Date
III. General Request for Comments
IV. Paperwork Reduction Act
V. Cost/Benefit Analysis
VI. Consideration of Burden on Competition; Promotion of Efficiency,
Compeitition, and Captial Formation
VII. Initial Regulatory Flexibility Anaylsis
VIII. Consideration of Impact on the Economy
IX. Statutory Authority
Text of Proposed Rule and Form Amendments
I. Background
Registered management investment companies (``funds'')\5\ typically
are externally managed by an investment adviser, to which they pay an
advisory fee from fund assets. The investment adviser in turn employs
and compensates the individuals who act as portfolio managers for the
fund. Our rules require funds to disclose in their prospectuses certain
information concerning their portfolio managers. Fund prospectuses are
required to include the name, title, length of service, and business
experience of the individuals who are primarily responsible for the
day-to-day management of the fund.\6\ If a committee, team, or other
group is jointly and primarily responsible for management of the fund,
the fund must provide disclosure to the effect that the fund's
investments are managed by that group, but need not provide the names
of the members of the group.\7\
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\5\ Management investment companies typically issue shares
representing an undivided proportionate interest in a changing pool
of securities, and include open-end and closed-end companies. See T.
Lemke, G. Lins, A. Smith III, Regulation of Investment Companies,
Vol. I, ch. 4, Sec. 4.04, at 4-5 (2002). An open-end company is a
management company that is offering for sale or has outstanding any
redeemable securities of which it is the issuer. A closed-end
company is any management company other than an open-end company.
See Section 5 of the Investment Company Act [15 U.S.C. 80a-5]. Open-
end companies generally offer and sell new shares to the public on a
continuous basis. Closed-end companies generally engage in
traditional underwritten offerings of a fixed number of shares and,
in most cases, do not offer their shares to the public on a
continuous basis.
\6\ Item 5(a)(2) of Form N-1A; Item 9.1.c of Form N-2.
\7\ Instruction 2 to Item 5(a)(2) of Form N-1A; Instruction 2 to
Item 9.1.c. of Form N-2.
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Recently, several areas of concern have been identified with
respect to the disclosure that funds provide about their portfolio
managers. First, concerns have been raised regarding the lack of
disclosure about the individual members of portfolio management
teams.\8\ Some have argued that disclosure that a fund uses a team
management approach, without identification of team members, can be a
convenient way to avoid disclosing who runs the fund and how long or
briefly they have been in place. Further, the use of a management team
potentially permits a fund to change managers frequently, without
appearing prone to manager turnover.
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\8\ See, e.g., Ian McDonald, Ghost Rider: Who's Running Your
Fund, TheStreet.com, Jan. 28, 2002; Tom Lauricella, Should Mutual-
Fund Managers Be Named?--Firms List Teams, Saying Move Keeps
Shareholder Costs Down; Others Utilize Web Sites, Filings The Wall
Street Journal, May 17, 2002, at C1.
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Second, concerns have been raised about potential conflicts of
interest between the interests of shareholders in a fund that a
portfolio manager oversees, and the interests of other clients and
investment vehicles, such as hedge funds and pension funds, that a
portfolio manager may also oversee.\9\ For example, it has been argued
that
[[Page 12753]]
because hedge fund performance fees typically are much higher than
mutual fund fees, a portfolio manager who manages a mutual fund and a
hedge fund may have an incentive to give preferential treatment to
hedge fund investors in allocating new investment opportunities. Other
conflict of interest issues raised by managing mutual fund and hedge
fund businesses may include trading-execution priorities, and the
potential for the hedge fund to take advantage of material inside
information regarding the mutual fund's portfolio holdings. Concerns
regarding these types of conflicts of interest were noted in the
Commission's recent staff report on the hedge fund industry.\10\
Third, some have suggested that information regarding the
compensation of portfolio managers should be disclosed.\11\ Advocates
of this disclosure argue that a portfolio manager's compensation
structure can influence how the manager runs the fund. For example, a
portfolio manager's bonuses may be linked to the amount of fund assets
under management, which may provide an incentive for the manager to
focus more on bringing assets into the fund than on meeting the fund's
investment objective. Concerns have also been raised regarding
compensation bonuses based on short-term performance, which may create
incentives for a fund manager to take greater risks than usual in an
effort to meet short-term performance goals.
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\9\ See, e.g., Stephen Schurr, Two Masters Are One Too Many for
Fund Firms, TheStreet.com, Nov. 26, 2003.
\10\ Implications of the Growth of Hedge Funds, Staff Report to
the U.S. Securities and Exchange Commission, at 83-85 (Sept. 2003).
\11\ See, e.g., Statement of John C. Bogle, Oversight Hearing on
the Mutual Fund and Investment Advisory Industry Before the U.S.
Senate Governmental Affairs Committee, Subcommittee on Financial
Management, 108th Cong., 1st. Sess. (Nov. 3, 2003); Jason Zweig, The
Great Fund Rip-Off, Money, Oct. 1, 2003, at 51; Jason Burton, Ten
Things Mutual Funds Aren't Telling You, CBS Marketwatch.com, Aug. 1,
2003.
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Finally, some have argued that it would be useful to fund investors
to require disclosure of the securities holdings of portfolio managers,
similar to the disclosure currently required regarding directors'
holdings of fund shares.\12\ They have suggested that disclosure of a
portfolio manager's holdings in a fund would provide a strong signal of
his or her alignment with the interest of fund shareholders.\13\ They
argue, for example, that portfolio managers may have a greater
incentive to keep management fees low and to consider the tax
consequences of their trading activity if they themselves are invested
in the fund they manage. These advocates also claim that disclosure of
fund ownership could provide investors with insight into the level of
confidence that a manager has in the investment strategy of the fund.
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\12\ See, e.g., Michael Maiello, Is Your Fund Manager Any Good?
What the Ads Won't Tell You, FORBES, Feb. 2, 2004, at 100; Karen
Damato, With Mutual Funds, Is the Investor No. 1--A Few Touchstones
Can Assist In Judging Whose Interests Carry The Most Weight With
Managers, The Wall Street Journal, Sept. 5, 2003, at C1. See also
Investment Company Act Release No. 24816 (Jan. 2, 2001) [66 FR 3734
(Jan. 16, 2001)]; Item 22(b)(5) of Schedule 14A; Item 12(b)(4) of
Form N-1A; Item 18.7 of Form N-2; Item 20(f) of Form N-3 (requiring
disclosure of dollar range of each director's ownership in each fund
that he or she oversees).
\13\ See, e.g., Martha Graybow, Fund Watchers Want Managers to
`Eat Own Cooking', Reuters News Service, July 18, 2003.
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The Commission is mindful of these concerns, and we have concluded
that increased transparency of information about fund portfolio
managers, including their identity, incentives, and potential conflicts
of interest, may assist investors in evaluating fund management and
making investment decisions. In order to address these concerns, we are
proposing amendments that would require improved disclosure regarding
portfolio managers. Our proposals would:
Require a fund to identify in its prospectus
each member of a committee, team, or other group of persons that is
jointly and primarily responsible for the day-to-day management of the
fund's portfolio;
Require a fund to provide information in its
Statement of Additional Information (``SAI'')\14\ regarding other
accounts managed by any of its portfolio managers, including a
description of conflicts of interest that may arise in connection with
simultaneously managing the fund and the other accounts;
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\14\ The SAI is part of a fund's registration statement and
contains information about a fund in addition to that contained in
the prospectus. The SAI is required to be delivered to investors
upon request and is available on the Commission's Electronic Data
Gathering, Analysis, and Retrieval System.
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Require a fund to disclose in its SAI the
structure of, and the method used to determine, the compensation of
each portfolio manager;
Require a fund to disclose in its SAI each
portfolio manager's ownership of securities in the fund and other
accounts, including investment companies, managed by the portfolio
manager, the fund's investment adviser, or any person controlling,
controlled by, or under common control with an investment adviser or
principal underwriter of the fund; and
Require a closed-end fund to provide disclosure
regarding its portfolio managers in its reports on Form N-CSR.
These proposed amendments are intended to provide greater transparency
regarding portfolio managers, their incentives in managing a fund, and
the potential conflicts of interest that may arise when they or the
advisers that employ them also manage other investment vehicles.\15\
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\15\ A fund is currently required to provide portfolio manager
disclosure regardless of whether the portfolio manager is employed
by the investment adviser or a sub-adviser. This would continue
under the proposed rules. See Section 2(a)(20)(B) of the Investment
Company Act [15 U.S.C. 80a-2(a)(20)(B)] (``investment adviser''
includes any person who provides investment advice to an investment
company under a contract with an investment adviser to the company).
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II. Discussion
A. Identification of Portfolio Management Team Members
We are proposing amendments to Forms N-1A and N-2, the registration
forms for mutual funds and closed-end funds, that would require those
funds to identify in their prospectuses each member of a committee,
team, or other group of persons associated with the fund's investment
adviser that is jointly and primarily responsible for the day-to-day
management of the fund's portfolio.\16\ Currently, if a committee,
team, or other group is jointly and primarily responsible for
management of a fund, Forms N-1A and N-2 require the fund to provide
disclosure that the fund's investments are managed by a group, but the
fund need not provide the names of the members of the group.\17\ The
proposed amendments would require funds to state the name, title,
length of service, and business experience of each member of a
portfolio management team. The proposals would also require the fund to
provide a brief description of each member's role on the management
team (e.g., lead member).\18\ We believe that this enhanced disclosure
regarding management team members could help investors better evaluate
the identity, background, and experience of fund management in cases
where the fund is managed using a team approach.
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\16\ Proposed Item 5(a)(2) and Instruction 2 to Item 5(a)(2) of
Form N-1A; proposed Item 9.1.c and Instruction to Item 9.1.c of Form
N-2.
\17\ Instruction 2 to Item 5(a)(2) of Form N-1A; Instruction 2
to Item 9.1.c of Form N-2.
\18\ Proposed Instruction 2 to Item 5(a)(2) of Form N-1A;
proposed Instruction to Item 9.1.c of Form N-2. The proposed
amendments would also delete current Instructions 3 and 4 to Item
5(a)(2) of Form N-1A, which provide additional guidance as to the
disclosure obligations of funds for which day-to-day management
responsibilities are shared between a portfolio management team and
an individual.
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We are also proposing to amend Form N-3, the registration form for
insurance company managed separate accounts
[[Page 12754]]
that issue variable annuity contracts, to require disclosure regarding
portfolio managers. The required disclosure would be similar to the
disclosure that would be required by Forms N-1A and N-2, including
disclosure regarding the members of portfolio management teams.\19\
Currently, Form N-3 does not require disclosure about portfolio
managers.
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\19\ Proposed Item 6(e) of Form N-3.
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We request comment generally on the proposed disclosure
requirements regarding members of portfolio management teams and the
proposed amendments to Form N-3 and specifically on the following
issues:
Should we require identification and disclosure
with respect to all of the members of a portfolio management team or
only certain members, e.g., the lead member?
Are the proposed disclosure requirements
regarding members of portfolio management teams appropriate? Should all
of the proposed disclosure requirements be required with respect to
every member of a portfolio management team? Is ``jointly and primarily
responsible'' the appropriate standard to use in connection with
portfolio management teams or should we use a different standard?
Should we require any additional information to
be disclosed concerning portfolio management teams and their members,
such as information about the team's structure and decision-making
process?
Is the fund prospectus the appropriate location
for the proposed disclosure regarding members of portfolio management
teams, or should this disclosure be provided in other locations, e.g.,
SAI, shareholder reports, or Form N-CSR?
Is the proposal to require managed separate
accounts issuing variable annuities to provide prospectus disclosure
regarding their portfolio managers appropriate?
B. Disclosure Regarding Other Accounts Managed, Potential Conflicts of
Interest, and Policies and Procedures To Address Conflicts
We are proposing to require a fund to provide disclosure in its SAI
regarding other accounts for which the fund's portfolio manager is
primarily responsible for the day-to-day portfolio management.\20\ This
disclosure is designed to enable investors to assess the conflicts of
interest to which a portfolio manager may be subject as a result of
managing the fund and other portfolios, such as hedge funds and other
registered investment companies. If a committee, team, or other group
that includes the portfolio manager is jointly and primarily
responsible for the day-to-day management of an account, the fund would
be required to include that account in responding to the proposed
disclosure requirement.\21\
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\20\ Proposed Item 15(a) of Form N-1A; proposed Item 21.1 of
Form N-2; proposed Item 22(a) of Form N-3.
\21\ Proposed Instruction 2 to Item 15(a) of Form N-1A; proposed
Instruction 2 to Item 21.1 of Form N-2; proposed Instruction 2 to
Item 22(a) of Form N-3.
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We are proposing to require that this disclosure, and the other new
disclosure that we are proposing with respect to portfolio managers, be
located in the SAI. If the information were included in the prospectus,
it might tend to obscure other, more basic information that is key to
an investment decision, such as investment objectives and strategies,
risks, and fees and charges. However, disclosure in the SAI will be
readily accessible to investors who desire this information, because
funds are required to provide an SAI promptly to any investor who
requests one. \22\ We note that we are also proposing amendments to
encourage funds to provide greater access to this information in the
SAI.\23\
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\22\ Instruction 3 to Item 1(b)(1) of Form N-1A; General
Instructions to ``Part B: Statement of Additional Information'' and
Item 33.6 of Form N-2; Item 37(d) of Form N-3.
\23\ See Section II.F. ``Disclosure of Availability of
Information,'' infra.
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The proposals would require a fund to disclose the number of other
accounts managed by a portfolio manager, and the total assets in the
accounts, within each of the following categories: registered
investment companies; other investment companies; other pooled
investment vehicles; and other accounts.\24\ For each such category,
the fund would also be required to disclose the number of accounts and
the total assets in the accounts with respect to which the advisory fee
is based on account performance.\25\
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\24\ Proposed Item 15(a)(2) of Form N-1A; proposed Item 21.1.b
of Form N-2; proposed Item 22(a)(ii) of Form N-3.
\25\ Proposed Item 15(a)(3) of Form N-1A; proposed Item 21.1.c
of Form N-2; proposed Item 22(a)(iii) of Form N-3.
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The proposals would also require the fund to describe any conflicts
of interest that may arise in connection with the portfolio manager's
management of the fund's investments, on the one hand, and the
investments of the other accounts, on the other.\26\ This description
would include, for example, conflicts between the investment strategy
of the fund and the investment strategy of the other accounts managed
by the portfolio manager and conflicts in allocation of investment
opportunities between the fund and such other accounts. In addition,
the fund would be required to include a description of the policies and
procedures used by the fund or the fund's adviser to address any such
conflicts. In this regard, we note that we recently adopted new rules
that require investment advisers to implement policies and procedures
that address conflicts arising from management of multiple funds and
accounts, such as the allocation of investment opportunities and the
allocation of aggregated trades.\27\ In order to mitigate the burden
for a fund of preparing descriptions of its policies and procedures,
the proposals would permit a fund to include a copy of the policies and
procedures used to address conflicts of interest, rather than a
description of the policies and procedures.\28\
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\26\ Proposed Item 15(a)(4) of Form N-1A; proposed Item 21.1.d
of Form N-2; proposed Item 22(a)(iv) of Form N-3.
\27\ See Investment Company Act Release No. 26299 (Dec. 17,
2003) [68 FR 74714, 74716 (Dec. 24, 2003)] (adopting rule 206(4)-7
under the Investment Advisers Act of 1940 and rule 38a-1 under the
Investment Company Act).
\28\ Proposed Instruction 3 to Item 15(a) of Form N-1A; proposed
Instruction 3 to Item 21.1 of Form N-2; proposed Instruction 3 to
Item 22(a) of Form N-3.
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We request comment generally on the proposals regarding other
accounts managed by a fund's portfolio manager, and in particular on
the following issues:
Are our proposed disclosure requirements with
respect to other accounts managed by a portfolio manager appropriate?
Is there any additional information about these other accounts that we
should require to be disclosed? For example, should we require funds to
identify some or all of the other accounts managed by their portfolio
managers?
Are our proposed disclosure requirements with
respect to conflicts of interest that may arise in connection with
managing a fund and managing other accounts appropriate? Is there any
additional information that we should require with respect to these
potential conflicts of interest? Should we require disclosure with
respect to actual conflicts of interest that occurred as a result of
managing a fund and other accounts? If so, where?
In the case of a fund with a portfolio
management team, should we require the proposed disclosure regarding
other accounts managed by a portfolio manager with respect to every
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member of the team or only certain team members, e.g., the lead member?
Is the SAI the appropriate location for the
proposed disclosure regarding other accounts managed by a portfolio
manager, or should this disclosure be provided in other locations,
e.g., prospectus, shareholder reports, or Form N-CSR?
Is disclosure of the potential conflicts in this
area sufficient or should the Commission prohibit portfolio managers of
registered management investment companies from managing certain types
of accounts?
C. Disclosure of Portfolio Manager Compensation Structure
We are proposing to require a fund to provide disclosure in its SAI
regarding the structure of, and the method used to determine, the
compensation of its portfolio managers.\29\ This disclosure may help
investors better understand a portfolio manager's incentives in running
a fund and may also shed light on possible conflicts of interest that
could arise when a portfolio manager manages other accounts.
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\29\ Proposed Item 15(b) of Form N-1A; proposed Item 21.2 of
Form N-2; proposed Item 22(b) of Form N-3.
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The proposals would require a description of the structure of, and
the method used to determine, the compensation received by a fund's
portfolio manager from the fund, its investment adviser, or any other
source with respect to management of the fund and any other account
included by the fund in response to the proposed disclosure requirement
described above regarding other accounts managed by the portfolio
manager.\30\ For purposes of this disclosure, compensation would
include, without limitation, salary, bonus, deferred compensation, and
pension and retirement plans and arrangements, whether the compensation
is cash or non-cash.\31\ For each type of compensation (e.g., salary,
bonus, deferred compensation, retirement plans and arrangements), the
fund would be required to include a description of the criteria on
which that type of compensation is based, for example, whether
compensation is fixed, whether compensation is based on fund pre-or
after-tax performance over a certain time period, and whether
compensation is based on the value of assets held in the fund's
portfolio.\32\ This description would be required to clearly disclose
any differences between the method used to determine the portfolio
manager's compensation with respect to the fund and other accounts,
e.g., if the portfolio manager receives part of an advisory fee that is
based on performance with respect to some accounts but not the fund,
this would be required to be disclosed.\33\
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\30\ See Section II.B, ``Disclosure Regarding Other Accounts
Managed,'' supra (describing proposal to require disclosure
regarding other accounts for which the fund's portfolio manager is
primarily responsible for day-to-day portfolio management); proposed
Instruction 3 to Item 15(b) of Form N-1A; proposed Instruction 3 to
Item 21.2 of Form N-2; proposed Instruction 3 to Item 22(b) of Form
N-3.
\31\ Proposed Instruction 2 to Item 15(b) of Form N-1A; proposed
Instruction 2 to Item 21.2 of Form N-2; proposed Instruction 2 to
Item 22(b) of Form N-3.
\32\ Proposed Item 15(b) of Form N-1A; proposed Item 21.2 of
Form N-2; proposed Item 22(b) of Form N-3.
\33\ Proposed Instruction 3 to Item 15(b) of Form N-1A; proposed
Instruction 3 to Item 21.2 of Form N-2; proposed Instruction 3 to
Item 22(b) of Form N-3.
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We are not proposing to require disclosure of the value of
compensation paid to a portfolio manager.\34\ Some have suggested that
the amount of compensation received by portfolio managers should be
disclosed, just as operating companies are required to disclose
executive compensation.\35\ However, the most direct mutual fund
analogue to the compensation of an operating company's executive
officers is the compensation of the investment adviser. The advisory
fee, which is the amount paid by fund shareholders for portfolio
management services, is currently required to be fully disclosed,
including as part of the fee table of the fund's prospectus.\36\
Individual portfolio managers typically are employees of a fund's
investment adviser and are compensated by the adviser. For that reason,
information about the compensation of a fund's portfolio managers would
be useful to investors primarily because it would help them to assess
the managers' incentives and whether their interests are aligned with
shareholders, not because it would help them better understand the
amount being paid from fund assets for management services.
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\34\ Id.
\35\ See, e.g., Russel Kinnel, Fund Investors Should Demand
Equality, Morningstar.com, Aug. 6, 2001. Cf. Item 402 of Regulation
S-K [17 CFR 229.402] (requiring disclosure of all compensation paid
to certain named executive officers, including the registrant's
chief executive officer and the most highly compensated officers
other than the chief executive officer).
\36\ See Item 3 and Instruction 3(a) to Item 3 of Form N-1A,
Item 3.1 and Instruction 7.a to Item 3.1 of Form N-2, and Item 3(a)
and Instruction 13 to Item 3(a) of Form N-3 (disclosure of amount of
advisory fee); Item 5(a)(1)(ii) of Form N-1A and Item 9.1.b.(3) of
Form N-2 (requiring description of investment adviser's
compensation); Item 14(a)(3) of Form N-1A, Item 20.1.c of Form N-2,
and Item 21(a)(iii) of Form N-3 (requiring disclosure in fund's SAI
regarding method of calculating the advisory fee payable to the
fund).
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We request comment generally on the proposed requirement to
disclose the structure of, and the method used to determine, the
compensation of portfolio managers, and in particular on the following
issues:
Is our proposed requirement that a fund disclose
the structure of, and the method used to determine, the compensation of
each portfolio manager appropriate? Is there any additional information
about portfolio manager compensation that we should require to be
disclosed? Should we require disclosure of the actual amount of
compensation paid to a portfolio manager?
In the case of a fund with a portfolio
management team, should we require the proposed disclosure regarding
portfolio manager compensation with respect to every member of the team
or only certain team members, e.g., the lead member?
Is the SAI the appropriate location for the
proposed disclosure regarding portfolio manager compensation, or should
this disclosure be provided in other locations, e.g., prospectus,
shareholder reports, or Form N-CSR?
D. Disclosure of Securities Ownership of Portfolio Managers
We are proposing to require a fund to disclose in its SAI the
ownership of securities of each of its portfolio managers in the fund
and in other accounts, including investment companies, managed by the
fund's investment adviser or the portfolio manager.\37\ This disclosure
could help investors to assess the extent to which the portfolio
manager's interests are aligned with theirs, as well as the level of
confidence that a manager has in the investment strategy of the fund.
In addition, this disclosure could assist fund investors in assessing
potential conflicts of interest between their interests and the
interests of other clients or investment vehicles in which the manager
has an interest.
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\37\ Proposed Item 15(c) of Form N-1A; proposed Item 21.3 of
Form N-2; proposed Item 22(c) of Form N-3. Cf. Item 12(b)(4) of Form
N-1A; Item 18.7 of Form N-2; Item 20(f) of Form N-3 (requiring
disclosure of director's beneficial ownership of equity securities
in funds overseen by director in a fund complex).
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The proposed disclosure requirement would apply to securities owned
beneficially or of record in: (i) the fund; (ii) other accounts that
the fund included in response to the proposed disclosure requirement
described above regarding other accounts managed by the portfolio
manager; \38\ and (iii) any
[[Page 12756]]
other account, including an investment company, managed by an
investment adviser of the fund, or by any person directly or indirectly
controlling, controlled by, or under common control with an investment
adviser or principal underwriter of the fund.\39\ With respect to
managed separate accounts issuing variable annuity contracts,
securities subject to disclosure would also include securities in any
investment company or account managed or sponsored by the sponsoring
insurance company, or by any person directly or indirectly controlling,
controlled by, or under common control with the sponsoring insurance
company.\40\ This disclosure would apply to securities owned by each
portfolio manager and his immediate family members. For purposes of
this disclosure, ``immediate family member'' would mean a person's
spouse; child residing in the person's household (including step and
adoptive children); and any dependent of the person, as defined in
section 152 of the Internal Revenue Code.\41\ The proposals would deem
a person to be a ``beneficial owner'' of a security if he or she is a
``beneficial owner'' under either rule 13d-3 under the Exchange Act,
which focuses on a person's voting and investment power, or rule 16-
1(a)(2) under the Exchange Act, which focuses on a person's economic
interests in a security.\42\
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\38\ See Section II.B, ``Disclosure Regarding Other Accounts
Managed,'' supra.
\39\ Proposed Item 15(c) of Form N-1A; proposed Item 21.3 of
Form N-2; proposed Item 22(c) of Form N-3.
Where a portfolio manager owns shares in one or more series of a
mutual fund that issues two or more series of preferred or special
stock each of which is preferred over all other series in respect of
assets specifically allocated to that series, the portfolio
manager's securities ownership would be disclosed by series and not
in the aggregate for the mutual fund.
\40\ Proposed Item 22(c)(iii) of Form N-3.
\41\ Proposed Instruction 4 to Item 15(c) of Form N-1A; proposed
Instruction 4 to Item 21.3 of Form N-2; proposed Instruction 4 to
Item 22(c) of Form N-3.
\42\ Proposed Instruction 2 to Item 15(c) of Form N-1A; proposed
Instruction 2 to Item 21.3 of Form N-2; proposed Instruction 2 to
Item 22(c) of Form N-3; 17 CFR 240.13d-3; 17 CFR 240.16a-1(a)(2).
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Our proposals would require the fund to provide the securities
ownership information in a tabular format, including: (1) The name of
the portfolio manager; (2) the account in which the portfolio manager
or immediate family member owns securities; (3) the title of the class
of securities owned; and (4) the dollar range of securities owned. The
information in the table would be required to be provided on an
aggregate basis for each portfolio manager and his immediate family
members.\43\
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\43\ Proposed Instruction 3 to Item 15(c) of Form N-1A; proposed
Instruction 3 to Item 21.3 of Form N-2; proposed Instruction 3 to
Item 22(c) of Form N-3.
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We are proposing to require disclosure of the dollar range of
securities owned by portfolio managers, similar to the disclosure
required for fund directors' ownership of equity securities in the
funds they oversee.\44\ Under our proposals, funds would be required to
disclose portfolio managers' ownership of securities using the
following dollar ranges: none, $1-$10,000, $10,001-$50,000, $50,001-
$100,000, $100,001-$500,000, $500,001-$1,000,000, or over
$1,000,000.\45\ Disclosure of the dollar range of securities owned by a
portfolio manager, rather than precise dollar holdings, could provide
shareholders with significant information to use in evaluating whether
a manager's interests are aligned with their own, while protecting
managers' legitimate privacy interests.\46\ The maximum range proposed
(over $1,000,000) is intended to reflect a level of investment that
would be significant. It is also intended to be high enough to permit
investors to compare the relative stakes of the manager in different
accounts. If, for example, we used a maximum range of over $100,000, an
investment of $100,001 and an investment of $5,000,000 would be
reflected as the same level of investment.\47\ This might not provide
sufficient information for an investor to compare a portfolio manager's
stakes in the fund managed and other accounts managed, such as hedge
funds.
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\44\ See Item 12(b)(4) of Form N-1A; Item 18.7 of Form N-2; Item
20(f) of Form N-3.
\45\ Proposed Instruction 5 to Item 15(c) of Form N-1A; proposed
Instruction 5 to Item 21.3 of Form N-2; proposed Instruction 5 to
Item 22(c) of Form N-3.
\46\ Cf. Investment Company Act Release No. 24816 (Jan. 2, 2001)
[66 FR 3734, 3741 (Jan. 16, 2001)] (explaining reasons for requiring
disclosure of a director's holdings of securities using dollar
ranges rather than an exact dollar amount).
\47\ Cf. Instruction 4 to Item 12(b)(4) of Form N-1A;
Instruction 4 to Item 18.7 of Form N-2; Instruction 4 to Item 20(f)
of Form N-3 (requiring disclosure of directors' equity securities
ownership using the following dollar ranges: none, $1-$10,000,
$10,001-$50,000, $50,001-$100,000, or over $100,000).
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Under our proposals, the required information about a portfolio
manager's ownership of securities, as well as the information regarding
other accounts managed and compensation structure, would be required to
be provided as of the end of the fund's most recently completed fiscal
year.\48\ However, in the case of an initial registration statement or
an update to a fund's registration statement that discloses a new
portfolio manager, information with respect to any newly identified
portfolio manager would be required to be provided as of the most
recent practicable date.\49\ The date as of which the information is
provided would be required to be disclosed. In effect, this would mean
that a fund would be required to disclose changes to this information
with respect to a previously identified portfolio manager once a year,
as part of its post-effective amendment that is an annual update to its
registration statement.\50\ A fund would not be required to update its
SAI during the year for each change in any of the required information
regarding a previously identified portfolio manager, such as changes in
the securities that a portfolio manager or his or her immediate family
members own. The costs of requiring a fund to update its SAI under
these circumstances could outweigh the benefits to investors.
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\48\ Proposed Instruction 1 to each of Items 15(a), (b) and (c)
of Form N-1A; proposed Instruction 1 to each of Items 21.1, 21.2,
and 21.3 of Form N-2; proposed Instruction 1 to each of Items 22(a),
(b), and (c) of Form N-3.
\49\ This would include an update to a mutual fund's
registration statement that adds a new series to the fund.
\50\ In the case of a change in portfolio manager, however, a
fund would be required to update its registration statement to
disclose the change and provide information about the new manager as
necessary to comply with its obligations under the Securities Act.
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We request comment generally on the proposed requirement to
disclose the ownership of securities of portfolio managers and in
particular on the following issues:
Is our proposed requirement that a fund disclose
the ownership of securities of each portfolio manager with respect to
each account managed by the portfolio manager as well as his ownership
in other accounts managed by the investment adviser (or any person
controlling, controlled by, or under common control with an investment
adviser or principal underwriter of the fund) appropriate? Is the group
of accounts that are covered appropriate, too broad, or too narrow? Is
there any additional information about the ownership of securities of
portfolio managers that should be required to be disclosed?
Should we require disclosure of the dollar range
of securities owned by the portfolio manager or would disclosure of the
actual value be more appropriate? If a dollar range is appropriate,
what should the required ranges be? Are the proposed ranges
appropriate? Would a higher maximum range better differentiate between
interests in different accounts (e.g., a $1,000,001 interest versus a
much larger interest, e.g., $25,000,000)? Or would it be
[[Page 12757]]
sufficient for the highest maximum range to begin at a lower level
(e.g., over $100,000)?
Should we also or instead require a fund to
disclose the percentage of a portfolio manager's net worth that is
invested in securities of the fund or other accounts? If so, what
should be included in the calculation of a portfolio manager's net
worth (e.g., net worth of immediate family members)?
What is the most effective means for disclosing
the relative magnitudes of a portfolio manager's interest in each of
the accounts in which he owns securities? For example, should we
require a fund to disclose, for each account listed in the table, the
percentage that the value of the manager's interest in the account
represents of the aggregate value of the manager's interest in all
accounts listed in the table?
Should we require that the disclosure of
securities owned differentiate between securities that a portfolio
manager is required to own as a condition of employment and securities
that are owned voluntarily?
Are there any types of securities to which the
proposed disclosure requirement should not apply, e.g., should we limit
the disclosure to equity securities?
Should disclosure be required with respect to
securities beneficially owned under either the definition in rule 13d-3
under the Exchange Act or the definition in rule 16a-1(a)(2) under the
Exchange Act, or is one definition more appropriate for purposes of
this disclosure requirement? Should the disclosure requirement apply to
record ownership of securities?
Should we require disclosure with respect to
securities owned by immediate family members of portfolio managers? If
so, should we broaden the definition of ``immediate family member'' to
include, for example, the portfolio's manager's parents, siblings, in-
laws, and children not residing with the manager? Should we limit the
definition to, for example, the portfolio manager's spouse?
In the case of a fund with a portfolio
management team, should we require the proposed disclosure regarding
ownership of securities of portfolio managers with respect to every
member of the team or only certain team members?
Is the SAI the appropriate location for the
proposed disclosure regarding securities ownership of portfolio
managers, or should this disclosure be provided in other locations,
e.g., prospectus, shareholder reports, or Form N-CSR?
Should we require this securities ownership
information, as well as information regarding other accounts managed
and compensation structure discussed above, to be provided as of the
end of the fund's most recently completed fiscal year, or should this
information be required as of another date, e.g., most recent calendar
year end or most recent practicable date prior to filing a new
registration statement or an update to an existing registration
statement? Is updating this information once a year for previously
identified managers, as proposed, sufficient or should it be updated
more frequently? If more frequent updates should be required, how
frequent should they be? In the case of an initial registration
statement, or an update to a fund's registration statement that
discloses a new portfolio manager, should we require information with
respect to any newly identified portfolio manager to be provided as of
the most recent practicable date or some other date, e.g., most recent
calendar-or fiscal year-end?
E. Removal of Exclusion for Index Funds
We are proposing to remove the current provision in Form N-1A that
excludes a fund that has as its investment objective replication of the
performance of an index from the requirement to identify and provide
disclosure regarding its portfolio managers.\51\ Portfolio manager
disclosure was originally intended to permit investors to assess the
background and experience of portfolio managers, and to evaluate the
extent of a manager's responsibility for the previous investment
success (or lack thereof) of the fund before making an investment
decision.\52\ Index funds were excluded from the requirement because
the portfolio management of such funds is, to some extent,
mechanical.\53\
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\51\ Instruction 1 to Item 5(a)(2) of Form N-1A.
\52\ See Investment Company Act Release No. 17294 (Jan. 8, 1990)
[55 FR 1460, 1467 (Jan. 16, 1990)] (proposing requirement in Form N-
1A for portfolio manager disclosure).
\53\ See Investment Company Act Release No. 19382 (Apr. 6, 1993)
[58 FR 19050, 19052 (Apr. 15, 1993)] (adopting requirement in Form
N-1A for portfolio manager disclosure).
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Our current proposals, however, require disclosure regarding
portfolio managers not in order to help investors assess the portfolio
manager's contribution to the fund's investment success, but rather to
shed light on the manager's alignment with investors' interests and on
potential conflicts of interest. Concerns about the alignment of
portfolio managers and their conflicts of interest are important to
investors in index funds, as they are for fund investors generally.
Conflicts of interest may arise, for example, in determining trading
execution priorities when a portfolio manager for an index fund also
manages an actively-managed fund that invests in some of the same
securities as the index fund. In addition, it can be difficult to
determine whether a fund tracks a designated index sufficiently closely
to qualify for the exclusion. As a result, we are proposing to remove
the exclusion of index funds from portfolio manager disclosure.
We request comment on the proposed removal of the exclusion for
index funds from providing portfolio manager disclosure and
specifically on the following issues:
Should we remove the exclusion for index funds?
Should portfolio managers of index funds be subject to all of the
proposed disclosure requirements regarding portfolio managers or only
some of the proposed requirements?
Is the fund prospectus the appropriate location
for the disclosure regarding the name, title, length of service, and
business experience of a portfolio manager of index funds? Should this
disclosure be provided in other locations, e.g., SAI or Form N-CSR?
Should we also remove the provision excluding
money market funds from the requirement to identify and provide
disclosure regarding their portfolio managers?
F. Disclosure of Availability of Information
In order to assist investors in finding the additional information
about portfolio managers that would be required in the SAI under our
proposals, we are proposing to require a fund to state in its
prospectus that the SAI provides additional information about portfolio
managers' compensation, other accounts managed by the portfolio
managers, and the portfolio managers' ownership of securities in the
fund and other accounts managed by the investment adviser or the
portfolio managers.\54\ This disclosure would be required to appear
adjacent to the disclosure identifying the portfolio managers.
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\54\ Proposed Item 5(a)(2) of Form N-1A; proposed Item 9.1.c of
Form N-2; proposed Item 6(e) of Form N-3. With respect to managed
separate accounts registered on Form N-3, registrants would also be
required to disclose that the SAI provides additional information
about portfolio managers' securities ownership in other accounts
managed or sponsored by the sponsoring insurance company.
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We are also proposing to require that the back cover page of a
mutual fund's
[[Page 12758]]
prospectus state whether the fund makes available its SAI and annual
and semi-annual reports, free of charge, on or through its Web site at
a specified Internet address.\55\ If a mutual fund does not make its
SAI and shareholder reports available in this manner, the fund would be
required to disclose the reasons why it does not do so (including,
where applicable, that the fund does not have an Internet Web site). We
are also proposing amendments to Forms N-2 and N-3 that would require
similar disclosure on the front cover page of the prospectus for
closed-end funds and insurance company managed separate accounts that
issue variable annuity contracts.\56\ In addition, the proposed
amendments to Forms N-2 and N-3 would require that the front cover page
of the prospectus include a statement explaining how to obtain the
fund's shareholder reports, and a toll-free (or collect) telephone
number for investors to call to request the fund's SAI, annual and
semi-annual reports, and other information, and to make shareholder
inquiries. They would also change from optional to mandatory disclosure
of the Commission's Internet Web site address. These requirements are
similar to existing requirements of Form N-1A.\57\
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\55\ Proposed Item 1(b)(1) of Form N-1A.
\56\ Proposed Item 1.1.d of Form N-2; proposed Item 1(a)(vi) of
Form N-3.
\57\ See Items 1(b)(1) and 1(b)(3) of Form N-1A.
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These proposals are intended to encourage funds to provide greater
access for investors to the SAI, including the additional disclosure
regarding portfolio managers that we are proposing, and also to fund
shareholder reports. Modernizing the disclosure system under the
Federal securities laws involves recognizing the importance of the
Internet in fostering prompt and more widespread dissemination of
information.\58\ We believe that mutual fund disclosure should be more
readily available to investors in a variety of locations to facilitate
investor access to that information. We also believe that it is
important for funds to make investors aware of the different sources
that provide access to information about a fund.
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\58\ See Securities Act Release No. 8128 (Sept. 5, 2002) [67 FR
58480 (Sept. 16, 2002)] (adopting requirement for an operating
company to disclose in its annual report on Form 10-K whether it
makes available free of charge on or through its Web site its annual
reports on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, and amendments).
---------------------------------------------------------------------------
We request comment on the proposed requirements regarding
availability of information.
G. Amendment of Form N-CSR
Because closed-end funds do not offer their shares continuously,
and are therefore generally not required to maintain an updated SAI to
meet their obligations under the Securities Act of 1933,\59\ we are
proposing to require closed-end funds to provide disclosure regarding
their portfolio managers in their annual reports on Form N-CSR.\60\
This would include the basic information (name, title, length of
service, and business experience), as well as the disclosure that we
are proposing regarding other accounts managed by a portfolio manager,
compensation structure, and ownership of securities.\61\ A closed-end
fund would be required to disclose any change in its portfolio
managers, and to provide all of the required portfolio manager
disclosure for any newly identified portfolio manager, in its semi-
annual reports on Form N-CSR.\62\
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\59\ Pursuant to rule 8b-16(b) under the Investment Company Act
[17 CFR 270.8b-16(b)], closed-end funds are not required to file
amendments to their registration statements (including their SAIs)
in order to comply with their Investment Company Act registration
obligations, provided that they include specified information in
their annual reports to shareholders.
\60\ Proposed Item 8 of Form N-CSR.
\61\ Proposed Item 8(a) of Form N-CSR.
\62\ Proposed Item 8(b) of Form N-CSR.
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The disclosure in Form N-CSR with respect to the name, title,
length of service, and business experience of a portfolio manager would
be required to be current as of the date of filing of the report, and
the disclosure regarding other accounts managed, compensation
structure, and securities ownership generally would be required to be
current as of the end of the fund's most recently completed fiscal
year.\63\ In the case of a newly identified portfolio manager in an
annual or semi-annual report, however, this disclosure would be
required to be current as of the most recent practicable date.\64\ This
would result in basic information about a closed-end fund's portfolio
manager in Form N-CSR that is current on the date of filing, and would
make the date with respect to which other disclosure about a portfolio
manager is provided consistent with the requirements for the SAI in
Forms N-1A, N-2, and N-3.
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\63\ Proposed Instruction 1 to Item 8(a)(1), proposed
Instruction 1 to Item 8(a)(2), proposed Instruction 1 to Item
8(a)(3), and proposed Instruction 1 to Item 8(a)(4) of Form N-CSR.
\64\ Proposed Instruction 1 to Item 8(a)(1), proposed
Instruction 1 to Item 8(a)(2), proposed Instruction 1 to Item
8(a)(3), proposed Instruction 1 to Item 8(a)(4), and proposed Item
8(b) of Form N-CSR.
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We request comment on the proposed amendments to Form N-CSR
regarding portfolio managers and specifically on the following issues:
Is the proposal to require closed-end funds to
provide disclosure regarding their portfolio managers in reports on
Form N-CSR appropriate? Should a closed-end fund be required to
disclose changes in its portfolio managers in its semi-annual reports
on Form N-CSR? Should disclosure of changes in a closed-end fund's
portfolio managers be required on a more frequent basis? If so, where?
Should we require a closed-end fund to provide
the basic information about a portfolio manager in its annual reports
on Form N-CSR as of the date of filing of the report or some other
date, e.g., most recent practicable date or most recent fiscal year
end? Should disclosure in the annual report regarding other accounts
managed, compensation structure, and securities ownership be required
as of the end of the fund's most recently completed fiscal year, or
should this information be required as of another date, e.g., most
recent practicable date or most recent calendar year end? Should this
disclosure with respect to any newly identified portfolio manager in an
annual report on Form N-CSR be required as of the most recent
practicable date, or as of another date, e.g., most recent fiscal year
end?
Should a closed-end fund be required to provide
all of the required portfolio manager disclosure for any newly
identified portfolio manager in its semi-annual reports on Form N-CSR?
Should the basic information about a portfolio manager in semi-annual
reports on Form N-CSR be required as of the date of filing of the
report, or some other date, e.g., most recent practicable date or end
of the most recent fiscal half-year? Should other disclosure regarding
portfolio managers in semi-annual reports on Form N-CSR be required as
of the most recent practicable date, or as of another date, e.g., most
recently completed fiscal half-year or most recent calendar year end?
Should a closed-end fund be required to update semi-annually the
information about each of its portfolio managers in its annual report
on Form N-CSR?
H. Compliance Date
If we adopt the proposed disclosure requirements, we expect to
require all new registration statements and annual reports on Form N-
CSR, and all post-effective amendments that are annual updates to
effective registration statements, filed on or after the effective date
of the amendments to comply with the proposed amendments. We would also
expect to require post-effective amendments that add a new series,
filed on or after the effective date, to comply
[[Page 12759]]
with the proposals with respect to the new series. The Commission
requests comment on these proposed compliance dates.
III. General Request for Comments
The Commission requests comment on the amendments proposed in this
release, whether any further changes to our rules or forms are
necessary or appropriate to implement the objectives of our proposed
amendments, and on other matters that might have an effect on the
proposals contained in this release.
IV. Paperwork Reduction Act
Certain provisions of the proposed amendments contain ``collection
of information'' requirements within the meaning of the Paperwork
Reduction Act of 1995 [44 U.S.C. 3501, et seq.], and the Commission is
submitting the proposed collections of information to the Office of
Management and Budget (``OMB'') for review in accordance with 44 U.S.C.
3507(d) and 5 CFR 1320.11. The titles for the collections of
information are: (1) ``Form N-1A under the Investment Company Act of
1940 and Securities Act of 1933, Registration Statement of Open-End
Management Investment Companies''; (2) ``Form N-2 under the Investment
Company Act of 1940 and Securities Act of 1933, Registration Statement
of Closed-End Management Investment Companies''; (3) ``Form N-3--
Registration Statement of Separate Accounts Organized as Management
Investment Companies''; and (4) ``Form N-CSR--Certified Shareholder
Report of Registered Management Investment Companies.'' An agency may
not conduct or sponsor, and a person is not required to respond to, a
collection of information unless it displays a currently valid OMB
control number.
Form N-1A (OMB Control No. 3235-0307), Form N-2 (OMB Control No.
3235-0026), and Form N-3 (OMB Control No. 3235-0316) were adopted
pursuant to Section 8(a) of the Investment Company Act [15 U.S.C. 80a-
8(a)] and Section 5 of the Securities Act [15 U.S.C. 77e]. Form N-CSR
(OMB Control No. 3235-0570) was adopted pursuant to Section 30 of the
Investment Company Act [15 U.S.C. 80a-29] and Sections 13 and 15(d) of
the Exchange Act [15 U.S.C. 78m and 78o(d)].
We are proposing amendments to Forms N-1A, N-2, and N-3 to require
funds to provide improved disclosure regarding their portfolio managers
in fund prospectuses and SAIs. The proposals also would amend Form N-
CSR to require similar disclosure for closed-end funds in reports on
Form N-CSR.
Form N-1A
Form N-1A, including the proposed amendments, contains collection
of information requirements. The likely respondents to this information
collection are open-end funds registering with the Commission.
Compliance with the disclosure requirements of Form N-1A is mandatory.
Responses to the disclosure requirements are not confidential.
The current hour burden for preparing an initial registration
statement on Form N-1A is 812.5 hours per portfolio, and the current
annual hour burden for preparing post-effective amendments on Form N-1A
is 104.5 hours per portfolio. The Commission estimates that, on an
annual basis, registrants file initial registration statements on Form
N-1A covering 483 portfolios, and file post-effective amendments on
Form N-1A covering 6,542 portfolios. An additional burden of 35,218
hours is expected to result from the Commission's recent proposed rules
relating to frequent purchases and redemptions of fund shares and
selective disclosure of portfolio holdings, disclosure of sales load
breakpoints, and disclosure of sales loads and revenue sharing in
connection with proposed mutual fund confirmation requirements and
point of sale disclosure.\65\ Thus, the Commission estimates that the
current total annual hour burden for the preparation and filing of Form
N-1A would be 1,111,298 hours.\66\
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\65\ See Investment Company Act Release No. 26287 (Dec. 11,
2003) [68 FR 70402 (Dec. 17, 2003)] (disclosure of frequent
purchases and redemptions of fund shares and selective disclosure of
portfolio holdings); Investment Company Act Release No. 26298 (Dec.
17, 2003) [68 FR 74732 (Dec. 24, 2003)] (disclosure of sales load
breakpoints); Investment Company Act Release No. 26341 (Jan. 29,
2004) [69 FR 6438 (Feb. 10, 2004)] (disclosure of sales loads and
revenue sharing).
\66\ This estimate is based on the following calculation: (812.5
hours x 483 portfolios) + (104.5 hours x 6,542 portfolios) =
1,076,080 hours. Additional annual hour burdens of 30,998 hours
resulting from the proposed rules relating to frequent purchases and
redemptions and selective disclosure, 2,252 hours resulting from the
proposed rules relating to sales load breakpoint disclosure, and
1,968 hours resulting from the proposed rules relating to disclosure
of sales loads and revenue sharing in connection with the proposals
for new mutual fund confirmation and point of sale disclosure,
result in a total annual hour burden of 1,111,298 hours (1,076,080
hours + 30,998 hours + 2,252 hours + 1,968 hours).
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We estimate that the proposed amendments would increase the hour
burden per portfolio per filing of an initial registration statement by
10 hours and would increase the hour burden per portfolio per filing of
a post-effective amendment to a registration statement by 4 hours.
Thus, the incremental hour burden resulting from the proposed
amendments relating to portfolio manager disclosure would be 30,998
hours ((10 hours x 483 portfolios) + (4 hours x 6,542 portfolios). If
the proposed amendments to Form N-1A are adopted, the total annual hour
burden for all funds for preparation and filing of initial registration
statements and post-effective amendments to Form N-1A would be
1,142,296 hours (30,998 hours + 1,111,298 hours).
Form N-2
Form N-2, including the proposed amendments, contains collection of
information requirements. The likely respondents to this information
collection are closed-end funds registering with the Commission.
Compliance with the disclosure requirements of Form N-2 is mandatory.
Responses to the disclosure requirements are not confidential.
The current hour burden for preparing an initial registration
statement on Form N-2 is 548.2 hours per fund, and the current annual
hour burden for preparing post-effective amendments on Form N-2 is
107.2 hours per fund. The Commission estimates that, on an annual
basis, 234 closed-end funds file initial registration statements on
Form N-2, and 38 closed-end funds file post-effective amendments on
Form N-2. Thus, the Commission estimates that the current total annual
hour burden for the preparation and filing of Form N-2 is 132,352
hours.\67\
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\67\ This estimate is based on the following calculation: (548.2
hours x 234 funds) + (107.2 hours x 38 funds) = 132,352 hours.
---------------------------------------------------------------------------
We estimate that the proposed amendments would increase the hour
burden per filing of an initial registration statement on Form N-2 by
10 hours and would increase the hour burden per filing of a post-
effective amendment to a registration statement on Form N-2 by 4 hours.
Thus, the incremental hour burden resulting from the proposed
amendments relating to portfolio manager disclosure would be 2,492
hours ((10 hours x 234 funds) + (4 hours x 38 funds)). If the proposed
amendments to Form N-2 are adopted, the total annual hour burden for
all funds for preparation and filing of initial registration statements
and post-effective amendments on Form N-2 would be 134,844 hours (2,492
hours + 132,352 hours).
Form N-3
Form N-3, including the proposed amendments, contains collection of
information requirements. The likely
[[Page 12760]]
respondents to this information collection are separate accounts,
organized as management investment companies offering variable
annuities, registering with the Commission on Form N-3. Compliance with
the disclosure requirements of Form N-3 is mandatory. Responses to the
disclosure requirements are not confidential.
The current total annual hour burden for preparing registration
statements on Form N-3 is 33,934 hours. An additional burden of 728
hours is expected to result from the Commission's recent proposed rules
relating to frequent purchases and redemptions of fund shares and
selective disclosure of portfolio holdings.\68\ Thus, we estimate that
the current total annual hour burden for the preparation and filing of
Form N-3 is 34,662 hours (33,934 hours + 728 hours).
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\68\ See Investment Company Act Release No. 26287 (Dec. 11,
2003) [68 FR 70402 (Dec. 17, 2003)] (disclosure of frequent
purchases and redemptions of fund shares and selective disclosure of
portfolio holdings).
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The Commission estimates that, on an annual basis, initial
registration statements covering 3 portfolios are filed on Form N-3 and
post-effective amendments covering 35 portfolios are filed on Form N-3.
We estimate that the proposed amendments would increase the hour burden
per portfolio per filing of an initial registration statement on Form
N-3 by 10 hours and would increase the hour burden per portfolio per
filing of a post-effective amendment to a registration statement on
Form N-3 by 4 hours. Thus, the incremental hour burden resulting from
the proposed amendments relating to portfolio manager disclosure would
be 170 hours ((10 hours x 3 portfolios) + (4 hours x 35 portfolios). If
the proposed amendments to Form N-3 are adopted, the total annual hour
burden for all funds for preparation and filing of initial registration
statements and post-effective amendments on Form N-3 would be 34,832
hours (170 hours + 34,662 hours).
Form N-CSR
Form N-CSR, including the amendments, contains collection of
information requirements. The respondents to this information
collection would be closed-end funds subject to rule 30e-1 under the
Investment Company Act registering with the Commission on Form N-2.
Compliance with the disclosure requirements of Form N-CSR is mandatory.
Responses to the disclosure requirements are not confidential.
The current total annual hour burden for preparing reports on Form
N-CSR is 142,498 hours. A net increase of 121 hours is expected to
result from the Commission's final rule relating to disclosure
regarding nominating committee functions and communications between
security holders and boards of directors.\69\ Thus, the Commission
estimates that the current total annual hour burden for the preparation
and filing of Form N-CSR would be 142,619 hours.
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\69\ See Investment Company Act Release No. 26262 (Nov. 24,
2003) [68 FR 66992 (Nov. 28, 2003)] (disclosure regarding nominating
committee functions and communications between security holders and
boards of directors).
---------------------------------------------------------------------------
We estimate that 733 closed-end funds registered on Form N-2 file
reports on Form N-CSR.\70\ We estimate that the hour burden associated
with the requirements of this proposal would increase the burden of
filing Form N-CSR for closed-end funds by 4 hours per annual report on
Form N-CSR, and by 2 hours per semi-annual report on Form N-CSR. Thus,
the incremental hour burden resulting from the proposed amendments
relating to portfolio manager disclosure would be 4,398 hours ((4 hours
x 733 closed-end funds) + (2 hours x 733 closed-end funds)). If the
proposed amendments to Form N-CSR are adopted, the total annual hour
burden for all funds for preparation and filing of reports on Form N-
CSR would be 147,017 hours (4,398 hours + 142,619 hours).
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\70\ The estimate of the number of closed-end funds registered
on Form N-2 is based on the Commission staff's analysis of reports
filed on Form N-SAR in 2003.
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Request for Comments
We request your comments on the accuracy of our estimates. Pursuant
to 44 U.S.C. 3506(c)(2)(B), the Commission solicits comments to: (i)
Evaluate whether the proposed collection of information is necessary
for the proper performance of the functions of the agency, including
whether the information will have practical utility; (ii) evaluate the
accuracy of the Commission's estimate of burden of the proposed
collection of information; (iii) determine whether there are ways to
enhance the quality, utility, and clarity of the information to be
collected; and (iv) evaluate whether there are ways to minimize the
burden of the collection of information on those who are to respond,
including through the use of automated collection techniques or other
forms of information technology.
Persons submitting comments on the collection of information
requirements should direct the comments to the Office of Management and
Budget, Attention: Desk Officer for the Securities and Exchange
Commission, Office of Information and Regulatory Affairs, Room 10102,
New Executive Office Building, Washington, DC 20503, and should send a
copy to Jonathan G. Katz, Secretary, Securities and Exchange
Commission, 450 5th Street, NW., Washington, DC 20549-0609, with
reference to File No. S7-12-04. Requests for materials submitted to OMB
by the Commission with regard to this collection of information should
be in writing, refer to File No. S7-12-04, and be submitted to the
Securities and Exchange Commission, Office of Filing and Information
Services, 450 Fifth Street, NW., Washington, DC 20549-0609. OMB is
required to make a decision concerning the collection of information
between 30 and 60 days after publication of this release. Consequently,
a comment to OMB is best assured of having its full effect if OMB
receives it within 30 days after publication of this Release.
V. Cost/Benefit Analysis
The Commission is sensitive to the costs and benefits imposed by
its rules. Our proposals would require mutual funds to provide enhanced
disclosure about their portfolio managers. Specifically, the proposals
would:
Require a fund to identify in its prospectus
each member of a committee, team, or other group of persons that is
jointly and primarily responsible for the day-to-day management of the
fund's portfolio;
Require a fund to provide information in its SAI
regarding other accounts managed by any of its portfolio managers,
including a description of conflicts of interest that may arise in
connection with simultaneously managing the fund and the other
accounts;
Require a fund to disclose in its SAI the
structure of, and the method used to determine, the compensation of
each portfolio manager;
Require a fund to disclose in its SAI each
portfolio manager's ownership of securities in the fund and other
accounts, including investment companies, managed by the portfolio
manager, the fund's investment adviser, or any person controlling,
controlled by, or under common control with an investment adviser or
principal underwriter of the fund; and
Require a closed-end fund to provide parallel
disclosure regarding its portfolio managers in its reports on Form N-
CSR.
These proposed amendments are intended to provide greater
[[Page 12761]]
transparency regarding portfolio managers, their incentives in managing
a fund, and the potential conflicts of interest that may arise when
they or the adviser that employs them also manages other investment
vehicles.
A. Benefits
The enhanced disclosure regarding portfolio managers that would be
required under our proposals would benefit investors in several ways.
First, enhanced disclosure regarding portfolio managers who are members
of management teams would help investors better evaluate the identity,
background, and experience of fund management in cases where the fund
is managed using a team approach. Second, requiring a fund to provide
disclosure regarding other accounts for which its portfolio managers
are primarily responsible for day-to-day portfolio management would
enable investors to assess the conflicts of interest to which a
portfolio manager may be subject as a result of managing the fund and
other portfolios, such as hedge funds. Third, requiring a fund to
provide disclosure regarding the structure of, and method used to
determine, the compensation of its portfolio managers will help
investors better understand a portfolio manager's incentives in running
a fund, and would also shed light on possible conflicts of interest
that may arise when a portfolio manager manages other accounts. Fourth,
requiring a fund to disclose the ownership of securities of each of its
portfolio managers in the fund and in other accounts, including
investment companies, managed by the fund's investment adviser or the
portfolio manager should help investors to assess the extent to which
the portfolio manager's interests are aligned with theirs, as well as
the level of confidence that a manager has in the investment strategy
of the fund. In addition, we believe that requiring this disclosure
would assist fund investors in assessing potential conflicts of
interest between their interests, and the interests of other clients or
investment vehicles in which the manager has an interest. Finally,
requiring a fund to state in its prospectus that the SAI provides
additional information about portfolio managers, and whether the SAI is
available on or through the fund's Web site, would assist investors in
accessing the additional information about portfolio managers that
would be required in the SAI under our proposals.
We seek comment on the benefits of the proposed amendments (and any
alternatives suggested by commenters) as well as any data quantifying
those benefits.
B. Costs
The proposals would impose new requirements on funds to provide
enhanced disclosure regarding their portfolio managers. We estimate
that complying with these proposed new disclosure requirements would
entail a relatively small financial burden. The information that would
be required regarding a fund's portfolio managers should be readily
available to a fund's investment adviser. We note that our recently
proposed code of ethics rules for investment advisers would require
portfolio managers to report to the investment adviser information on
their securities holdings and transactions on a quarterly basis,
including information about shares of investment companies managed by
the adviser and certain of its affiliates.\71\ Therefore, we expect
that the cost of compiling and reporting this information should be
limited.
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\71\ See Investment Company Act Release No. 26337 (Jan. 20,
2004) [66 FR 4040 (Jan. 27, 2004)] (proposing rule 204A-1(b)(1)
under the Investment Advisers Act of 1940).
---------------------------------------------------------------------------
These costs may include both internal costs (for attorneys and
other non-legal staff of a fund, such as computer programmers, to
prepare and review the required disclosure) and external costs (for
printing and typesetting of the disclosure). For purposes of the
Paperwork Reduction Act, we have estimated that the proposed new
disclosure requirements would add 38,058 hours to the burden of
completing Forms N-1A, N-2, N-3 and N-CSR.\72\ We estimate that this
additional burden would equal total internal costs of $2,986,792
annually, or approximately $786 per fund.\73\
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\72\ This represents 30,998 additional hours for Form N-1A,
2,492 additional hours for Form N-2, 170 additional hours for Form
N-3, and 4,398 additional hours for Form N-CSR.
\73\ These internal cost estimates are based on a Commission
estimate that approximately 3,800 funds would be subject to the
proposed amendments and an estimated hourly wage rate of $78.48.
This estimated wage rate is a blended rate, based on published
hourly wage rates for compliance attorneys ($74.22) and programmers
($42.05) in New York City, and the estimate that professional and
non-professional staff will divide time equally on compliance with
the disclosure requirements, yielding a weighted wage rate of
$58.135 (($74.22 x .50) + ($42.05 x .50)) = $58.135). See Securities
Industry Association, Report on Management & Professional Earnings
in the Securities Industry 2001 (Oct. 2001) (for most current rate
for compliance attorneys in New York City); Securities Industry
Association, Report on Management & Professional Earnings in the
Securities Industry 2002 (Sep. 2002) (for most current rate for
programmers in New York City). This weighted wage rate was then
adjusted upward by 35% for overhead, reflecting the costs of
supervision, space, and administrative support, to obtain the total
per hour internal cost of $78.48 ($58.135 x 1.35 = $78.48).
---------------------------------------------------------------------------
We expect that the external costs of providing the additional
disclosure relating to a fund's portfolio managers, including other
accounts they manage, compensation structure, and ownership of
securities in investment companies or accounts they manage, would be
minimal, because this disclosure would be required in a fund's SAI (and
in the case of a closed-end fund, on Form N-CSR also). The SAI is
typically not typeset, and is only required to be provided to
shareholders upon request. Similarly, because the disclosure in Form N-
CSR proposed for closed-end funds would not be required to be delivered
to shareholders, we estimate that the external costs of this disclosure
on Form N-CSR will be minimal as well.
We request comment on the nature and magnitude of our estimates of
the costs of the additional disclosure that would be required if our
proposals were adopted.
C. Request for Comments
We request comments on all aspects of this cost-benefit analysis,
including identification of any additional costs or benefits of, or
suggested alternatives to, the proposed amendments. Commenters are
requested to provide empirical data and other factual support for their
views to the extent possible.
VI. Consideration of Burden on Competition; Promotion of Efficiency,
Competition, and Capital Formation
Section 23(a)(2) of the Exchange Act requires us, when adopting
rules under the Exchange Act, to consider the impact that any new rule
would have on competition.\74\ Section 23(a)(2) also prohibits us from
adopting any rule that would impose a burden on competition not
necessary or appropriate in furtherance of the purposes of the Exchange
Act. In addition, Section 2(c) of the Investment Company Act, Section
2(b) of the Securities Act, and Section 3(f) of the Exchange Act
require the Commission, when engaging in rulemaking that requires it to
consider or determine whether an action is necessary or appropriate in
the public interest, to consider, in addition to the protection of
investors, whether the action will promote efficiency, competition, and
capital formation.\75\
---------------------------------------------------------------------------
\74\ 15 U.S.C. 78w(a)(2).
\75\ 15 U.S.C. 77(b), 78c(f), and 80a-2(c).
---------------------------------------------------------------------------
The proposed amendments are intended to provide greater
transparency for fund shareholders regarding the identity, incentives,
and
[[Page 12762]]
potential conflicts of interest of a fund's portfolio managers. These
changes may improve efficiency. The enhanced disclosure requirements
may enable shareholders to make a more informed assessment as to
whether the interests of fund management are aligned with shareholders,
which could promote more efficient allocation of investments by
investors. These proposals may also improve competition, as enhanced
transparency regarding a fund's portfolio managers may encourage
investors to consider more carefully the background, incentives, and
potential conflicts of interest of the portfolio managers of the funds
in which they are invested, or in which they are considering investing.
Finally, the proposed amendments will have no effect on capital
formation.
Although, as noted above, we believe that the proposed amendments
would benefit investors, the magnitude of the effect of the proposed
amendments on efficiency and competition, and the extent to which they
would be offset by the costs of the proposals, are difficult to
quantify. We note that most funds are currently required to provide
disclosure in their prospectuses regarding the identity and background
of their portfolio managers.
We request comment on whether the proposed amendments, if adopted,
would promote efficiency, competition, and capital formation. We also
request comment on any anti-competitive effects of the proposed
amendments. Commenters are requested to provide empirical data and
other factual support for their views if possible.
VII. Initial Regulatory Flexibility Analysis
This Initial Regulatory Flexibility Analysis (``Analysis'') has
been prepared in accordance with 5 U.S.C. 603. It relates to the
Commission's proposed amendments to Forms N-1A, N-2, and N-3 under the
Securities Act and the Investment Company Act, and to Form N-CSR under
the Investment Company Act and the Exchange Act, that would require
funds to provide improved disclosure about their portfolio managers.
A. Reasons for, and Objectives of, Proposed Amendments
Sections I and II of this Release describe the reasons for and
objectives of the proposed form amendments. As we discuss in detail
above, these proposals are designed to increase the transparency of the
information that a fund provides regarding its portfolio managers, in
order to better help investors evaluate their background, incentives in
managing the fund, and potential conflicts of interest.
B. Legal Basis
The Commission is proposing amendments to Forms N-1A, N-2, and N-3
pursuant to authority set forth in Sections 5, 6, 7, 10, and 19(a) of
the Securities Act [15 U.S.C. 77e, 77f, 77g, 77j, and 77s(a)], and
Sections 8, 24(a), 30, and 38 of the Investment Company Act [15 U.S.C.
80a-8, 80a-24(a), 80a-29, and 80a-37]. The Commission is adopting
amendments to Form N-CSR pursuant to authority set forth in sections
10(b), 13, 15(d), 23(a), and 36 of the Exchange Act [15 U.S.C. 78j(b),
78m, 78o(d), 78w(a), and 78mm] and sections 8, 24(a), 30, and 38 of the
Investment Company Act [15 U.S.C. 80a-8, 80a-24(a), 80a-29, and 80a-
37].
C. Small Entities Subject to the Rule
For purposes of the Regulatory Flexibility Act, an investment
company is a small entity if it, together with other investment
companies in the same group of related investment companies, has net
assets of $50 million or less as of the end of its most recent fiscal
year.\76\ Approximately 145 mutual funds registered on Form N-1A and
approximately 70 closed-end funds registered on Form N-2 meet this
definition.\77\ We estimate that few, if any, registered separate
accounts registered on Form N-3 are small entities.\78\
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\76\ 17 CFR 270.0-10.
\77\ This estimate is based on analysis by the Division of
Investment Management staff of information from databases compiled
by third-party information providers, including Morningstar, Inc.,
and Lipper.
\78\ This estimate is based on figures compiled by Division of
Investment Management staff regarding separate accounts registered
on Form N-3. In determining whether an insurance company separate
account is a small entity for purposes of the Regulatory Flexibility
Act, the assets of insurance company separate accounts are
aggregated with the assets of their sponsoring insurance companies.
Rule 0-10(b) under the Investment Company Act [17 CFR 270.0-10(b)].
---------------------------------------------------------------------------
D. Reporting, Recordkeeping, and Other Compliance Requirements
The proposed amendments would require a fund to identify and
provide basic information in its prospectus regarding each member of a
team responsible for managing the fund's portfolio. In addition, a fund
would be required to provide additional disclosure in its SAI about its
portfolio managers, including other accounts they manage, compensation
structure, and ownership of securities in accounts they manage. A
closed-end fund would also be required to provide this disclosure in
its reports on Form N-CSR.
The Commission estimates some one-time formatting and ongoing costs
and burdens that would be imposed on all funds, including funds that
are small entities. We note, however, that in many cases mutual funds
and closed-end funds currently provide disclosure in their prospectuses
about their portfolio managers, including their names, titles, length
of service, and business experience. For purposes of the Paperwork
Reduction Act, we have estimated that the proposed new disclosure
requirements would increase the hour burden of filings on Forms N-1A,
N-2, N-3, and N-CSR by 38,058 hours annually. We estimate that this
additional burden would increase total internal costs per fund,
including funds that are small entities, by approximately $786 per fund
annually.\79\
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\79\ These figures are based on an estimated hourly wage rate of
$78.48. See supra note 73.
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We expect that the external costs of providing the additional
disclosure relating to a fund's portfolio managers, including other
accounts they manage, compensation structure, and ownership of
securities in accounts they manage, would be minimal, because this
disclosure would be required in a fund's SAI (and in the case of a
closed-end fund, on Form N-CSR also). The SAI is typically not typeset,
and is only required to be provided to shareholders upon request.
Similarly, because the disclosure in Form N-CSR proposed for closed-end
funds would not be required to be delivered to shareholders, we
estimate that the external costs of this disclosure on Form N-CSR will
be minimal as well.
The Commission solicits comment on the effect the proposed
amendments would have on small entities.
E. Duplicative, Overlapping or Conflicting Federal Rules
There are no rules that duplicate, overlap, or conflict with the
proposed amendments.
F. Significant Alternatives
The Regulatory Flexibility Act directs us to consider significant
alternatives that would accomplish our stated objective, while
minimizing any significant adverse impact on small issuers. In
connection with the proposed amendments, the Commission considered the
following alternatives: (i) The establishment of differing compliance
or reporting requirements or timetables that take into account the
resources available to small entities; (ii) the clarification,
consolidation, or simplification of compliance and reporting
requirements under the
[[Page 12763]]
proposed amendments for small entities; (iii) the use of performance
rather than design standards; and (iv) an exemption from coverage of
the proposed amendments, or any part thereof, for small entities.
The Commission believes at the present time that special compliance
or reporting requirements for small entities, or an exemption from
coverage for small entities, would not be appropriate or consistent
with investor protection. The proposed amendments would provide
investors with greater transparency of information regarding fund
portfolio managers, including their compensation structure, other
accounts that they manage, and their ownership of securities in the
fund and in other accounts managed by the fund's investment adviser or
the portfolio manager. This increased transparency would allow
investors to better assess portfolio managers' incentives, alignment
with shareholders' interests, and potential conflicts of interest.
Different disclosure requirements for funds that are small entities may
create the risk that investors in these funds would be less able to
evaluate the portfolio management of these funds, and less able to make
informed choices among funds. We believe it is important for the
disclosure that would be required by the proposed amendments to be
provided to investors in all funds, not just funds that are not
considered small entities.
We have endeavored through the proposed amendments to minimize the
regulatory burden on all funds, including small entities, while meeting
our regulatory objectives. Small entities should benefit from the
Commission's reasoned approach to the proposed amendments to the same
degree as other investment companies. Further clarification,
consolidation, or simplification of the proposals for funds that are
small entities would be inconsistent with the Commission's concern for
investor protection. Finally, we do not consider using performance
rather than design standards to be consistent with our statutory
mandate of investor protection in the present context. Based on our
past experience, we believe that the proposed disclosure would be more
useful to investors if there were enumerated informational
requirements.
G. Solicitation of Comments
The Commission encourages the submission of written comments with
respect to any aspect of this Analysis. Comment is specifically
requested on the number of small entities that would be affected by the
proposed amendments and the likely impact of the proposals on small
entities. Commenters are asked to describe the nature of any impact and
provide empirical data supporting the extent of the impact. These
comments will be considered in the preparation of the Final Regulatory
Flexibility Analysis, if the proposed amendments are adopted, and will
be placed in the same public file as comments on the proposed
amendments themselves. Comments should be submitted in triplicate to
Jonathan G. Katz, Secretary, Securities and Exchange Commission, 450
Fifth Street, NW., Washington, DC 20549-0609. Comments also may be
submitted electronically at the following E-mail address: [email protected]. All comment letters should refer to File No. S7-12-
04; this file number should be included on the subject line if E-mail
is used. Comment letters will be available for public inspection and
copying in the Commission's Public Reference Room, 450 Fifth Street,
NW., Washington, DC 20549-0102. Electronically submitted comment
letters also will be posted on the Commission's Internet Web site
(http://www.sec.gov).\80\
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\80\ We do not edit personal identifying information, such as
names or electronic mail addresses, from hard copy or electronic
submissions. You should submit only information that you wish to
make available publicly.
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VIII. Consideration of Impact on the Economy
For purposes of the Small Business Enforcement Fairness Act of
1996,\81\ a rule is ``major'' if it results or is likely to result in:
---------------------------------------------------------------------------
\81\ Pub. L. No. 104-21, Title II, 110 Stat. 857 (1996).
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An annual effect on the economy of $100 million
or more;
A major increase in costs or prices for
consumers or individual industries; or
Significant adverse effects on competition,
investment, or innovation.
The Commission requests comment on the potential impact of the proposed
amendments on the U.S. economy on an annual basis. Commenters are
requested to provide empirical data to support their views.
IX. Statutory Authority
The Commission is proposing amendments to Forms N-1A, N-2, and N-3
pursuant to authority set forth in sections 5, 6, 7, 10, and 19(a) of
the Securities Act [15 U.S.C. 77e, 77f, 77g, 77j, and 77s(a)] and
sections 8, 24(a), 30, and 38 of the Investment Company Act [15 U.S.C.
80a-8, 80a-24(a), 80a-29, and 80a-37]. The Commission is proposing
amendments to Form N-CSR pursuant to authority set forth in sections
10(b), 13, 15(d), 23(a), and 36 of the Exchange Act [15 U.S.C. 78j(b),
78m, 78o(d), 78w(a), and 78mm] and sections 8, 24(a), 30, and 38 of the
Investment Company Act [15 U.S.C. 80a-8, 80a-24(a), 80a-29, and 80a-
37].
List of Subjects
17 CFR Parts 239 and 249
Reporting and recordkeeping requirements, Securities.
17 CFR Parts 270 and 274
Investment companies, Reporting and recordkeeping requirements,
Securities.
Text of Proposed Rule and Form Amendments
For the reasons set out in the preamble, the Commission proposes to
amend Title 17, Chapter II, of the Code of Federal Regulations as
follows.
PART 239--FORMS PRESCRIBED UNDER THE SECURITIES ACT OF 1933
1. The authority citation for Part 239 continues to read in part as
follows:
Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 77z-2, 77sss, 78c,
78l, 78m, 78n, 78o(d), 78u-5, 78w(a), 78ll(d), 79e, 79f, 79g, 79j,
79l, 79m, 79n, 79q, 79t, 80a-8, 80a-24, 80a-26, 80a-29, 80a-30, and
80a-37, unless otherwise noted.
PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934
2. The authority citation for part 249 continues to read, in part,
as follows:
Authority: 15 U.S.C. 78a et seq. and 7201 et seq.; and 18 U.S.C.
1350, unless otherwise noted.
PART 270--RULES AND REGULATIONS, INVESTMENT COMPANY ACT OF 1940
3. The authority citation for part 270 continues to read, in part,
as follows:
Authority: 15 U.S.C. 80a-1 et seq., 80a-34(d), 80a-37, and 80a-
39, unless otherwise noted.
Sec. 270.30a-2 [Amended]
4. Section 270.30a-2 is amended by:
a. Revising the reference ``Item 11(a)(2)'' in paragraph (a) to
read ``Item 12(a)(2)''; and
b. Revising the reference ``Item 11(b)'' in paragraph (b) to read
``Item 12(b)''.
PART 274--FORMS PRESCRIBED UNDER THE INVESTMENT COMPANY ACT OF 1940
5. The authority citation for Part 274 continues to read in part as
follows:
Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 78c(b), 78l, 78m,
78n, 78o(d), 80a-8, 80a-24, 80a-26, and 80a-29, unless otherwise
noted.
[[Page 12764]]
Note: The text of Forms N-1A, N-2, N-3, and N-CSR do not, and
these amendments will not, appear in the Code of Federal
Regulations.
6. Form N-1A (referenced in Sec. Sec. 239.15A and 274.11A) is
amended by:
a. Revising Item 1(b)(1) and Instruction 1 to Item 1(b)(1);
b. Revising Item 5(a)(2) and Instructions 1 and 2 to Item 5(a)(2)
and deleting Instructions 3 and 4 to Item 5(a)(2);
c. Redesignating Items 15 through 29 as Items 16 through 30;
d. Adding new Item 15;
e. In paragraph B.2(b) of the General Instructions, revising the
phrase ``(except Items 1, 2, 3, and 8), B, and C (except Items 22(e)
and (i)-(k))'' to read ``(except Items 1, 2, 3, and 8), B, and C
(except Items 23(e) and (i)-(k))'';
f. In Item 2(c)(2)(iii), revising the phrase ``Instruction 5 to
Item 21(b)(7)'' to read ``Instruction 5 to Item 22(b)(7)'';
g. In Instruction 2(a) to Item 2(c)(2), revising the references
``Item 20(a)'', Item 20(b)(1)'', and ``Items 20(b)(2) and (3)'' to read
``Item 21(a)'', Item 21(b)(1)'', and ``Items 21(b)(2) and (3)'',
respectively;
h. In Instruction 2(b) to Item 2(c)(2), revising the phrase
``Instruction 6 to Item 21(b)(7)'' to read ``Instruction 6 to Item
22(b)(7)'';
i. In Instruction 2(d) to Item 2(c)(2), revising the references
``Item 20(b)(2)'' and ``Item 20'' to read ``Item 21(b)(2)'' and ``Item
21'', respectively;
j. In Instruction 4 to Item 2(c)(2), revising the phrase
``Instruction 11 to Item 21(b)(7)'' to read ``Instruction 11 to Item
22(b)(7)'';
k. In Instruction to paragraph (a) of newly redesignated Item 18,
revising the reference ``Item 17(a)'' to read ``Item 18(a)'';
l. In Instruction 4 to paragraph (c) of newly redesignated Item 18
and paragraph (k) of newly redesignated Item 23, revising the reference
``Item 21'' to read ``Item 22'';
m. In Instruction 1 to paragraph (c) of newly redesignated Item 20,
revising the reference ``Item 29'' to read ``Item 30'';
n. In paragraph (b) of newly redesignated Item 27, revising the
reference ``Item 19'' to read ``Item 20'';
o. In Instruction 2 to paragraph (c) of newly redesignated Item 27,
revising the reference ``Item 19(c)'' to read ``Item 20(c)'';
p. In paragraph (b)(7)(ii)(B) of newly redesignated Item 22,
revising the reference ``Item 20(b)(1)'' to read ``Item 21(b)(1)'';
q. In Instruction to paragraph (c)(1)(ii) of newly redesignated
Item 22, revising the references ``Item 21(b)(1)'' and ``Item
21(c)(1)'' to read ``Item 22(b)(1)'' and ``Item 22(c)(1)'',
respectively; and
r. In Instruction 2(a)(ii) to paragraph (d)(1) of newly
redesignated Item 22, revising the reference ``Item 21(d)(1)'' to read
``Item 22(d)(1)''.
The additions and revisions are to read as follows:
Form N-1A
* * * * *
Item 1. Front and Back Cover Pages
* * * * *
(b) Back Cover Page. Include the following information, in plain
English under rule 421(d) under the Securities Act, on the outside back
cover page of the prospectus:
(1) A statement that the SAI includes additional information about
the Fund, and a statement to the following effect:
Additional information about the Fund's investments is available in
the Fund's annual and semi-annual reports to shareholders. In the
Fund's annual report, you will find a discussion of the market
conditions and investment strategies that significantly affected the
Fund's performance during its last fiscal year.
Explain that the SAI and the Fund's annual and semi-annual reports
are available, without charge, upon request, and explain how
shareholders in the Fund may make inquiries to the Fund. Provide a
toll-free (or collect) telephone number for investors to call: To
request the SAI; to request the Fund's annual report; to request the
Fund's semi-annual report; to request other information about the Fund;
and to make shareholder inquiries. Also, state whether the Fund makes
available its SAI and annual and semi-annual reports, free of charge,
on or through the Fund's Web site at a specified Internet address. If
the Fund does not make its SAI and shareholder reports available in
this manner, disclose the reasons why it does not do so (including,
where applicable, that the Fund does not have an Internet Web site).
Instructions:
1. A Fund may indicate, if applicable, that the SAI, annual and
semi-annual reports, and other information are available by E-mail
request.
* * * * *
Item 5. Management, Organization, and Capital Structure
(a) * * *
(2) Portfolio Manager. State the name, title, and length of service
of the person or persons employed by or associated with the Fund or an
investment adviser of the Fund, if any, who are primarily responsible
for the day-to-day management of the Fund's portfolio (``Portfolio
Manager''). Also state each Portfolio Manager's business experience
during the past 5 years. Include a statement, adjacent to the foregoing
disclosure, that the SAI provides additional information about the
Portfolio Manager's(s') compensation, other accounts managed by the
Portfolio Manager(s), and the Portfolio Manager's(s') ownership of
securities in the Fund and other accounts managed by the Fund's
investment adviser(s) or the Portfolio Manager(s).
Instructions:
1. This requirement does not apply to a Money Market Fund.
2. If a committee, team, or other group of persons associated with
an investment adviser of the Fund is jointly and primarily responsible
for the day-to-day management of the Fund's portfolio, information in
response to this Item is required for each member of such committee,
team, or other group. For each such member, provide a brief description
of the person's role on the committee, team, or other group (e.g., lead
member).
* * * * *
Item 15. Portfolio Managers
(a) Other Accounts Managed. If a Portfolio Manager identified in
response to Item 5(a)(2) is primarily responsible for the day-to-day
management of the portfolio of any other account, provide the following
information:
(1) The Portfolio Manager's name;
(2) The number of other accounts managed within each of the
following categories and the total assets in the accounts managed
within each category:
(A) Registered investment companies;
(B) Other investment companies;
(C) Other pooled investment vehicles; and
(D) Other accounts.
(3) For each of the categories in paragraph (a)(2) of this Item,
the number of accounts and the total assets in the accounts with
respect to which the advisory fee is based on the performance of the
account; and
(4) A description of any conflicts of interest that may arise in
connection with the Portfolio Manager's management of the Fund's
investments, on the one hand, and the investments of the other accounts
included in response to paragraph (a)(2) of this Item, on the other.
This description would include, for example, conflicts between the
investment strategy of the Fund and the investment strategy of other
accounts managed by the Portfolio Manager and conflicts in allocation
of investment
[[Page 12765]]
opportunities between the Fund and other accounts managed by the
Portfolio Manager. Include a description of the policies and procedures
used by the Fund or the Fund's adviser to address any such conflicts.
Instructions:
1. Information should be provided as of the end of the Fund's most
recently completed fiscal year, except that, in the case of an initial
registration statement or an update to the Fund's registration
statement that discloses a new Portfolio Manager, information with
respect to any newly identified Portfolio Manager should be provided as
of the most recent practicable date. Disclose the date as of which the
information is provided.
2. If a committee, team, or other group of persons that includes
the Portfolio Manager is jointly and primarily responsible for the day-
to-day management of the portfolio of an account, the account should be
included in responding to paragraph (a) of this Item.
3. A Fund may satisfy the requirement to provide a description of
the policies and procedures used by it or the adviser to address
conflicts of interest by including a copy of the policies and
procedures themselves.
(b) Compensation. Describe the structure of, and the method used to
determine, the compensation of each Portfolio Manager identified in
response to Item 5(a)(2). For each type of compensation (e.g., salary,
bonus, deferred compensation, retirement plans and arrangements),
include a description of the criteria on which that type of
compensation is based, for example, whether compensation is fixed,
whether compensation is based on Fund pre- or after-tax performance
over a certain time period, and whether compensation is based on the
value of assets held in the Fund's portfolio.
Instructions:
1. Information should be provided as of the end of the Fund's most
recently completed fiscal year, except that, in the case of an initial
registration statement or an update to the Fund's registration
statement that discloses a new Portfolio Manager, information with
respect to any newly identified Portfolio Manager should be provided as
of the most recent practicable date. Disclose the date as of which the
information is provided.
2. Compensation includes, without limitation, salary, bonus,
deferred compensation, and pension and retirement plans and
arrangements, whether the compensation is cash or non-cash. The value
of compensation is not required to be disclosed under this Item.
3. Include a description of the structure of, and the method used
to determine, any compensation received by the Portfolio Manager from
the Fund, the Fund's investment adviser, or any other source with
respect to management of the Fund and any other accounts included in
the response to paragraph (a)(2) of this Item. This description should
clearly disclose any differences between the method used to determine
the Portfolio Manager's compensation with respect to the Fund and other
accounts, e.g., if the Portfolio Manager receives part of an advisory
fee that is based on performance with respect to some accounts but not
the Fund, this should be disclosed.
(c) Ownership of Securities. For each Portfolio Manager identified
in response to Item 5(a)(2), furnish the information required by the
following table as to each class of securities owned beneficially or of
record by the Portfolio Manager or his immediate family members in:
(i) The Fund;
(ii) Accounts included in the response to paragraph (a)(2) of this
Item; and
(iii) Any other account, including an investment company, managed
by an investment adviser of the Fund, or by any person directly or
indirectly controlling, controlled by, or under common control with an
investment adviser or principal underwriter of the Fund:
--------------------------------------------------------------------------------------------------------------------------------------------------------
(1) (2) (3) (4)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Name of Portfolio Manager Investment Company or Account Title of Class Dollar Range of Securities in the
Investment Company or Account
--------------------------------------------------------------------------------------------------------------------------------------------------------
Instructions:
(1) Information should be provided as of the end of the Fund's most
recently completed fiscal year, except that, in the case of an initial
registration statement or an update to the Fund's registration
statement that discloses a new Portfolio Manager, information with
respect to any newly identified Portfolio Manager should be provided as
of the most recent practicable date. Specify the valuation date by
footnote or otherwise.
(2) An individual is a ``beneficial owner'' of a security if he is
a ``beneficial owner'' under either rule 13d-3 or rule 16a-1(a)(2)
under the Exchange Act (17 CFR 240.13.d-3 or 240.16a-1(a)(2)).
(3) Provide the information required by the table on an aggregate
basis for each Portfolio Manager and his immediate family members.
(4) For purposes of this Item, the term ``immediate family member''
means a person's spouse; child residing in the person's household
(including step and adoptive children); and any dependent of the
person, as defined in section 152 of the Internal Revenue Code (26
U.S.C. 152).
(5) In disclosing the dollar range of securities owned by a
Portfolio Manager and his immediate family members in column (4), use
the following ranges: none, $1-$10,000, $10,001-$50,000, $50,001-
$100,000, $100,001-$500,000, $500,001-$1,000,000, or over $1,000,000.
* * * * *
7. Form N-2 (referenced in Sec. Sec. 239.14 and 274.11a-1) is
amended by:
a. Revising Item 1.1.d;
b. Revising Item 9.1.c and the Instructions to Item 9.1.c;
c. Redesignating Items 21 through 33 as Items 22 through 34;
d. Adding new Item 21;
e. In paragraph E.3 of the General Instructions, revising the
reference ``Item 33.4'' to read ``Item 34.4'';
f. In paragraph F of the General Instructions, revising the
reference ``Items 4.1 or 23'' to read ``Items 4.1 or 24'';
g. In paragraph F of the General Instructions, revising the
reference ``Items 4.2, 8.6.c or 23'' to read ``Items 4.2, 8.6.c or
24'';
h. In paragraph F of the General Instructions, revising the
reference ``Items 4.1, 4.2, 8.6.c or 23'' to read ``Items 4.1, 4.2,
8.6.c or 24'';
i. In paragraph F of the General Instructions, revising the
reference ``Item 24.1'' to read ``Item 25.1'';
j. In paragraph G.3 of the General Instructions, revising the
reference ``Items 24.2.h, 24.2.l, 24.2.n, and 24.2.o'' to read ``Items
25.2.h, 25.2.l, 25.2.n, and 25.2.o'';
k. In the first paragraph of General Instructions for Part B:
Statement of Additional Information, revising the reference ``Item
33.6'' to read ``Item 34.6'';
l. In Instruction 6 to Item 1.1.g, revising the reference ``Item
26'' to read ``Item 27'';
[[Page 12766]]
m. In Instruction 3 to Item 8.6.c, revising the reference ``Item
23'' to read ``Item 24'';
n. In Instruction 2 to Item 10.6, revising the reference ``Item
24.2.n'' to read ``Item 25.2n'';
o. In newly redesignated Item 24.1.b, revising the reference ``Item
23'' to read ``Item 24'';
p. In newly redesignated Item 25.2.o, revising the reference
``Items 8.6 or 23'' to read ``Items 8.6 or 24''; and
q. In Instruction 2 to newly redesignated Item 25, revising the
reference ``Items 8.6 or 23'' to read ``Items 8.6 or 24''.
The additions and revisions are to read as follows:
Form N-2
* * * * *
Item 1. Outside Front Cover
1. * * *
d. A statement that (A) the prospectus sets forth concisely the
information about the Registrant that a prospective investor ought to
know before investing; (B) the prospectus should be retained for future
reference; and (C) additional information about the Registrant has been
filed with the Commission and is available upon written or oral request
and without charge (This statement should explain how to obtain the
SAI, whether any of it has been incorporated by reference into the
prospectus, and where the table of contents of the SAI appears in the
prospectus. This statement should also explain how to obtain the
Registrant's annual and semi-annual reports to shareholders. Provide a
toll-free (or collect) telephone number for investors to call: To
request the SAI; to request the Registrant's annual report; to request
the Registrant's semi-annual report; to request other information about
the Registrant; and to make shareholder inquiries. Also state whether
the Registrant makes available its SAI and annual and semi-annual
reports, free of charge, on or through the Registrant's Web site at a
specified Internet address. If the Registrant does not make its SAI and
shareholder reports available in this manner, disclose the reasons why
it does not do so (including, where applicable, that the Registrant
does not have an Internet Web site.) Also include the information that
the Commission maintains an Internet Web site (http://www.sec.gov) that
contains the SAI, material incorporated by reference, and other
information regarding registrants.);
* * * * *
Item 9. Management
1. * * *
c. Portfolio Management: The name, title, and length of service of
the person or persons employed by or associated with the Registrant or
an investment adviser of the Registrant, if any, who are primarily
responsible for the day-to-day management of the Registrant's portfolio
(``Portfolio Manager''). Also state each Portfolio Manager's business
experience during the past 5 years. Include a statement, adjacent to
the foregoing disclosure, that the SAI provides additional information
about the Portfolio Manager's(s') compensation, other accounts managed
by the Portfolio Manager(s), and the Portfolio Manager's(s') ownership
of securities in the Registrant and other accounts managed by the
Registrant's investment adviser(s) or the Portfolio Manager(s).
Instruction:
If a committee, team, or other group of persons associated with an
investment adviser of the Registrant is jointly and primarily
responsible for the day-to-day management of the Registrant's
portfolio, information in response to this Item is required for each
member of such committee, team, or other group. For each such member,
provide a brief description of the person's role on the committee,
team, or other group (e.g., lead member).
* * * * *
Item 21. Portfolio Managers
1. Other Accounts Managed: If a Portfolio Manager identified in
response to Item 9.1.c is primarily responsible for the day-to-day
management of the portfolio of any other account, provide the following
information:
a. The Portfolio Manager's name;
b. The number of other accounts managed within each of the
following categories and the total assets in the accounts managed
within each category:
(1) Registered investment companies;
(2) Other investment companies;
(3) Other pooled investment vehicles; and
(4) Other accounts.
c. For each of the categories in Item 21.1.b., the number of
accounts and the total assets in the accounts with respect to which the
advisory fee is based on the performance of the account; and
d. A description of any conflicts of interest that may arise in
connection with the Portfolio Manager's management of the Registrant's
investments, on the one hand, and the investments of the other accounts
included in response to Item 21.1b., on the other. This description
would include, for example, conflicts between the investment strategy
of the Registrant and the investment strategy of other accounts managed
by the Portfolio Manager and conflicts in allocation of investment
opportunities between the Registrant and other accounts managed by the
Portfolio Manager. Include a description of the policies and procedures
used by the Registrant or the Registrant's adviser to address any such
conflicts.
Instructions:
1. Information should be provided as of the end of the Registrant's
most recently completed fiscal year, except that, in the case of an
initial registration statement or an update to the Registrant's
registration statement that discloses a new Portfolio Manager,
information with respect to any newly identified Portfolio Manager
should be provided as of the most recent practicable date. Disclose the
date as of which the information is provided.
2. If a committee, team, or other group of persons that includes
the Portfolio Manager is jointly and primarily responsible for the day-
to-day management of the portfolio of an account, the account should be
included in responding to Item 21.1.
3. A Registrant may satisfy the requirement to provide a
description of the policies and procedures used by it or the adviser to
address conflicts of interest by including a copy of the policies and
procedures themselves.
2. Compensation: Describe the structure of, and the method used to
determine, the compensation of each Portfolio Manager identified in
response to Item 9.1.c. For each type of compensation (e.g., salary,
bonus, deferred compensation, retirement plans and arrangements),
include a description of the criteria on which that type of
compensation is based, for example, whether compensation is fixed,
whether compensation is based on the Registrant's pre- or after-tax
performance over a certain time period, and whether compensation is
based on the value of assets held in the Registrant's portfolio.
Instructions:
1. Information should be provided as of the end of the Registrant's
most recently completed fiscal year, except that, in the case of an
initial registration statement or an update to the Registrant's
registration statement that discloses a new Portfolio Manager,
information with respect to any newly identified Portfolio Manager
should be provided as of the most recent practicable date. Disclose the
date as of which the information is provided.
2. Compensation includes, without limitation, salary, bonus,
deferred compensation, and pension and retirement plans and
arrangements, whether the compensation is cash or
[[Page 12767]]
non-cash. The value of compensation is not required to be disclosed
under this Item.
3. Include a description of the structure of, and the method used
to determine, any compensation received by the Portfolio Manager from
the Registrant, the Registrant's investment adviser, or any other
source with respect to management of the Registrant and any other
accounts included in the response to Item 21.1.b. This description
should clearly disclose any differences between the method used to
determine the Portfolio Manager's compensation with respect to the
Registrant and other accounts, e.g., if the Portfolio Manager receives
part of an advisory fee that is based on performance with respect to
some accounts but not the Registrant, this should be disclosed.
3. Ownership of Securities: For each Portfolio Manager identified
in response to Item 9.1.c, furnish the information required by the
following table as to each class of securities owned beneficially or of
record by the Portfolio Manager or his immediate family members in:
a. The Registrant;
b. Accounts included in the response to Item 21.1.b.;
c. Any other account, including an investment company, managed by
an investment adviser of the Registrant, or by any person directly or
indirectly controlling, controlled by, or under common control with an
investment adviser or principal underwriter of the Registrant:
--------------------------------------------------------------------------------------------------------------------------------------------------------
(1) (2) (3) (4)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Name of Portfolio Investment Company or AccouTitle of Class Dollar Range of Securities in the
Manager Investment Company or Account
--------------------------------------------------------------------------------------------------------------------------------------------------------
Instructions:
1. Information should be provided as of the end of the Registrant's
most recently completed fiscal year, except that, in the case of an
initial registration statement or an update to the Registrant's
registration statement that discloses a new Portfolio Manager,
information with respect to any newly identified Portfolio Manager
should be provided as of the most recent practicable date. Specify the
valuation date by footnote or otherwise.
2. An individual is a ``beneficial owner'' of a security if he is a
``beneficial owner'' under either rule 13d-3 or rule 16a-1(a)(2) under
the Exchange Act (17 CFR 240.13.d-3 or 240.16a-1(a)(2)).
3. Provide the information required by the table on an aggregate
basis for each Portfolio Manager and his immediate family members.
4. For purposes of this Item, the term ``immediate family member''
means a person's spouse; child residing in the person's household
(including step and adoptive children); and any dependent of the
person, as defined in section 152 of the Internal Revenue Code (26
U.S.C. 152).
5. In disclosing the dollar range of securities owned by a
Portfolio Manager and his immediate family members in column (4), use
the following ranges: none, $1-$10,000, $10,001-$50,000, $50,001-
$100,000, $100,001-$500,000, $500,001-$1,000,000, or over $1,000,000.
* * * * *
8. Form N-3 (referenced in Sec. Sec. 239.17a and 274.11b) is
amended by:
a. Revising Item 1(a)(vi);
b. Adding new Item 6(e);
c. Redesignating Items 22 through 37 as Items 23 through 38;
d. Adding new Item 22;
e. In paragraph G of the General Instructions, revising the
reference ``Items 4(a) or 27'' to read ``Items 4(a) or 28'';
f. In paragraph G(2) of the General Instructions, revising the
reference ``Item 28(a)'' to read ``Items 29(a)'';
g. In paragraph H(3) of the General Instructions, revising the
reference ``Item 28(b)(5), (12), (13), and (14)'' to read ``Items
29(b)(5), (12), (13), and (14)'';
h. In Instruction 3(d) of Item 4(b), revising the reference ``Item
27'' to read ``Item 28'';
i. In Instruction 2 of Item 9, revising the reference ``Item 26''
to read ``Item 27'';
j. In newly redesignated Item 29(b)(14), revising the reference
``Item 27'' to read ``Item 28''; and
k. In Instruction 2 of newly redesignated Item 29, revising the
reference ``Item 27'' to read ``Item 28''.
The additions and revisions are to read as follows:
Form N-3
* * * * *
Item 1. Cover Page
(a) * * *
(vi) a statement or statements that (A) the prospectus sets forth
information about the Registrant that a prospective investor ought to
know before investing; (B) the prospectus should be retained for future
reference; and (C) additional information about the Registrant has been
filed with the Commission and is available upon written or oral request
and without charge (This statement should explain how to obtain the
Statement of Additional Information (``SAI''), whether any of it has
been incorporated by reference into the prospectus, and where the table
of contents of the SAI appears in the prospectus. This statement should
also explain how to obtain the Registrant's annual and semi-annual
reports to shareholders. Provide a toll-free (or collect) telephone
number for investors to call: to request the SAI; to request the
Registrant's annual report; to request the Registrant's semi-annual
report; to request other information about the Registrant; and to make
shareholder inquiries. Also state whether the Registrant makes
available its SAI and annual and semi-annual reports, free of charge,
on or through the Registrant's Web site at a specified Internet
address. If the Registrant does not make its SAI and shareholder
reports available in this manner, disclose the reasons why it does not
do so (including, where applicable, that the Registrant does not have
an Internet Web site.) Also include the information that the Commission
maintains an Internet Web site (http://www.sec.gov) that contains the
SAI, material incorporated by reference, and other information
regarding registrants.);
* * * * *
Item 6. Management
* * * * *
(e) the name, title, and length of service of the person or persons
employed by or associated with the Registrant or an investment adviser
of the Registrant, if any, who are primarily responsible for the day-
to-day management of the Registrant's portfolio (``Portfolio
Manager''). Also state each Portfolio Manager's business experience
during the past 5 years. Include a statement, adjacent to the foregoing
disclosure, that the SAI provides additional information about the
Portfolio Manager's(s') compensation, other accounts managed by the
Portfolio Manager(s), and the Portfolio Manager's(s') ownership of
securities in the Registrant and other accounts
[[Page 12768]]
managed or sponsored by the Insurance Company, the Registrant's
investment adviser(s), or the Portfolio Manager(s).
Instructions:
1. This requirement does not apply to a Registrant that holds
itself out as a money market fund and meets the maturity, quality, and
diversification requirements of rule 2a-7 [17 CFR 270.2a-7].
2. If a committee, team, or other group of persons associated with
an investment adviser of the Registrant is jointly and primarily
responsible for the day-to-day management of the Registrant's
portfolio, information in response to this Item is required for each
member of such committee, team, or other group. For each such member,
provide a brief description of the person's role on the committee,
team, or other group (e.g., lead member).
* * * * *
Item 22. Portfolio Managers
(a) If a Portfolio Manager identified in response to Item 6(e) is
primarily responsible for the day-to-day management of the portfolio of
any other account, provide the following information:
(i) The Portfolio Manager's name;
(ii) The number of other accounts managed within each of the
following categories and the total assets in the accounts managed
within each category:
(A) Registered investment companies;
(B) Other investment companies;
(C) Other pooled investment vehicles; and
(D) Other accounts.
(iii) For each of the categories in paragraph (a)(ii) of this Item,
the number of accounts and the total assets in the accounts with
respect to which the advisory fee is based on the performance of the
account; and
(iv) A description of any conflicts of interest that may arise in
connection with the Portfolio Manager's management of the Registrant's
investments, on the one hand, and the investments of the other accounts
included in response to paragraph (a)(ii) of this Item, on the other.
This description would include, for example, conflicts between the
investment strategy of the Registrant and the investment strategy of
other accounts managed by the Portfolio Manager and conflicts in
allocation of investment opportunities between the Registrant and other
accounts managed by the Portfolio Manager. Include a description of the
policies and procedures used by the Registrant or the Registrant's
adviser to address any such conflicts.
Instructions:
1. Information should be provided as of the end of the Registrant's
most recently completed fiscal year, except that, in the case of an
initial registration statement or an update to the Registrant's
registration statement that discloses a new Portfolio Manager,
information with respect to any newly identified Portfolio Manager
should be provided as of the most recent practicable date. Disclose the
date as of which the information is provided.
2. If a committee, team, or other group of persons that includes
the Portfolio Manager is jointly and primarily responsible for the day-
to-day management of the portfolio of an account, the account should be
included in responding to paragraph (a) of this Item.
3. A Registrant may satisfy the requirement to provide a
description of the policies and procedures used by it or the adviser to
address conflicts of interest by including a copy of the policies and
procedures themselves.
(b) Describe the structure of, and the method used to determine,
the compensation of each Portfolio Manager identified in response to
Item 6(e). For each type of compensation (e.g., salary, bonus, deferred
compensation, retirement plans and arrangements), include a description
of the criteria on which that type of compensation is based, for
example, whether compensation is fixed, whether compensation is based
on the Registrant's pre- or after-tax performance over a certain time
period, and whether compensation is based on the value of assets held
in the Registrant's portfolio.
Instructions:
1. Information should be provided as of the end of the Registrant's
most recently completed fiscal year, except that, in the case of an
initial registration statement or an update to the Registrant's
registration statement that discloses a new Portfolio Manager,
information with respect to any newly identified Portfolio Manager
should be provided as of the most recent practicable date. Disclose the
date as of which the information is provided.
2. Compensation includes, without limitation, salary, bonus,
deferred compensation, and pension and retirement plans and
arrangements, whether the compensation is cash or non-cash. The value
of compensation is not required to be disclosed under this Item.
3. Include a description of the structure of, and the method used
to determine, any compensation received by the Portfolio Manager from
the Registrant, the Registrant's investment adviser, or any other
source with respect to management of the Registrant and any other
accounts included in the response to paragraph (a)(ii) of this Item.
This description should clearly disclose any differences between the
method used to determine the Portfolio Manager's compensation with
respect to the Registrant and other accounts, e.g., if the Portfolio
Manager receives part of an advisory fee that is based on performance
with respect to some accounts but not the Registrant, this should be
disclosed.
(c) For each Portfolio Manager identified in response to Item 6(e),
furnish the information required by the following table as to each
class of securities owned beneficially or of record by the Portfolio
Manager or his immediate family members in:
(i) The Registrant;
(ii) Accounts included in the response to paragraph (a)(ii) of this
Item; and
(iii) Any other account, including an investment company, managed
or sponsored by the Insurance Company or an investment adviser of the
Registrant, or by any person directly or indirectly controlling,
controlled by, or under common control with the Insurance Company or an
investment adviser or principal underwriter of the Registrant:
--------------------------------------------------------------------------------------------------------------------------------------------------------
(1) (2) (3) (4)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Name of Portfolio Manager Investment Company or Account Title of Class Dollar Range of Securities in the
Investment Company or Account
--------------------------------------------------------------------------------------------------------------------------------------------------------
Instructions:
1. Information should be provided as of the end of the Registrant's
most recently completed fiscal year, except that, in the case of an
initial registration statement or an update to the Registrant's
registration statement that discloses a new Portfolio Manager,
information with respect to any newly identified Portfolio Manager
should be provided as of the most recent
[[Page 12769]]
practicable date. Specify the valuation date by footnote or otherwise.
2. An individual is a ``beneficial owner'' of a security if he is a
``beneficial owner'' under either rule 13d-3 or rule 16a-1(a)(2) under
the Exchange Act (17 CFR 240.13.d-3 or 240.16a-1(a)(2)).
3. Provide the information required by the table on an aggregate
basis for each Portfolio Manager and his immediate family members.
4. For purposes of this Item, the term ``immediate family member''
means a person's spouse; child residing in the person's household
(including step and adoptive children); and any dependent of the
person, as defined in section 152 of the Internal Revenue Code (26
U.S.C. 152).
5. In disclosing the dollar range of securities owned by a
Portfolio Manager and his immediate family members in column (4), use
the following ranges: none, $1-$10,000, $10,001-$50,000, $50,001-
$100,000, $100,001-$500,000, $500,001-$1,000,000, or over $1,000,000.
* * * * *
9. Form N-CSR (referenced in Sec. Sec. 249.331 and 274.128) is
amended by:
a. Revising the reference ``11(a)(1)'' in General Instruction D and
paragraphs (c) and (f)(1) of Item 2 to read ``12(a)(1)'';
b. Redesignating Items 8 through 11 as Items 9 through 12; and
c. Adding new Item 8.
The additions and revisions are to read as follows:
Form N-CSR
* * * * *
Item 8. Portfolio Managers of Closed-End Management Investment
Companies.
(a) If the registrant is a closed-end management investment company
that is filing an annual report on this Form N-CSR, provide the
following information:
(1) State the name, title, and length of service of the person or
persons employed by or associated with the registrant or an investment
adviser of the registrant, if any, who are primarily responsible for
the day-to-day management of the registrant's portfolio (``Portfolio
Manager''). Also state each Portfolio Manager's business experience
during the past 5 years.
Instructions to paragraph (a)(1):
1. Information should be provided as of the date of filing of the
report. Disclose the date as of which the information is provided.
2. If a committee, team, or other group of persons associated with
an investment adviser of the registrant is jointly and primarily
responsible for the day-to-day management of the registrant's
portfolio, information in response to this Item is required for each
member of such committee, team, or other group. For each such member,
provide a brief description of the person's role on the committee,
team, or other group (e.g., lead member).
(2) If a Portfolio Manager identified in response to paragraph
(a)(1) of this Item is primarily responsible for the day-to-day
management of the portfolio of any other account, provide the following
information:
(i) The Portfolio Manager's name;
(ii) The number of other accounts managed within each of the
following categories and the total assets in the accounts managed
within each category:
(A) Registered investment companies;
(B) Other investment companies;
(C) Other pooled investment vehicles; and
(D) Other accounts.
(iii)For each of the categories in paragraph (a)(2)(ii) of this
Item, the number of accounts and the total assets in the accounts with
respect to which the advisory fee is based on the performance of the
account; and
(iv) A description of any conflicts of interest that may arise in
connection with the Portfolio Manager's management of the registrant's
investments, on the one hand, and the investments of the other accounts
included in response to paragraph (a)(2)(ii) of this Item, on the
other. This description would include, for example, conflicts between
the investment strategy of the registrant and the investment strategy
of other accounts managed by the Portfolio Manager and conflicts in
allocation of investment opportunities between the registrant and other
accounts managed by the Portfolio Manager. Include a description of the
policies and procedures used by the registrant or the registrant's
adviser to address any such conflicts.
Instructions to paragraph (a)(2):
1. Information should be provided as of the end of the registrant's
most recently completed fiscal year, except that, in the case of any
newly identified Portfolio Manager, information should be provided as
of the most recent practicable date. Disclose the date as of which the
information is provided.
2. If a committee, team, or other group of persons that includes
the Portfolio Manager is jointly and primarily responsible for the day-
to-day management of the portfolio of an account, the account should be
included in responding to paragraph (a)(2) of this Item.
3. A registrant may satisfy the requirement to provide a
description of the policies and procedures used by it or the adviser to
address conflicts of interest by including a copy of the policies and
procedures themselves.
(3) Describe the structure of, and the method used to determine,
the compensation of each Portfolio Manager identified in response to
paragraph (a)(1) of this Item. For each type of compensation (e.g.,
salary, bonus, deferred compensation, retirement plans and
arrangements), include a description of the criteria on which that type
of compensation is based, for example, whether compensation is fixed,
whether compensation is based on the registrant's pre- or after-tax
performance over a certain time period, and whether compensation is
based on the value of assets held in the registrant's portfolio.
Instructions to paragraph (a)(3):
1. Information should be provided as of the end of the registrant's
most recently completed fiscal year, except that, in the case of any
newly identified Portfolio Manager, information should be provided as
of the most recent practicable date. Disclose the date as of which the
information is provided.
2. Compensation includes, without limitation, salary, bonus,
deferred compensation, and pension and retirement plans and
arrangements, whether the compensation is cash or non-cash. The value
of compensation is not required to be disclosed under this Item.
3. Include a description of the structure of, and the method used
to determine, any compensation received by the Portfolio Manager from
the registrant, the registrant's investment adviser, or any other
source with respect to management of the registrant and any other
accounts included in the response to paragraph (a)(2)(ii) of this Item.
This description should clearly disclose any differences between the
method used to determine the Portfolio Manager's compensation with
respect to the registrant and other accounts, e.g., if the Portfolio
Manager receives part of an advisory fee that is based on performance
with respect to some accounts but not the registrant, this should be
disclosed.
(4) For each Portfolio Manager identified in response to paragraph
(a)(1) of this Item, furnish the information required by the following
table as to each class of securities owned beneficially or of record by
the Portfolio Manager or his immediate family members in:
(i) The registrant;
[[Page 12770]]
(ii) Accounts included in the response to paragraph (a)(2)(ii) of
this Item;
(iii) Any other account, including an investment company, managed
by an investment adviser of the registrant, or by any person directly
or indirectly controlling, controlled by, or under common control with
an investment adviser or principal underwriter of the registrant:
--------------------------------------------------------------------------------------------------------------------------------------------------------
(1) (2) (3) (4)
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Name of Portfolio Manager Investment Company or Account Title of Class Dollar Range of Securities in the
Investment Company or Account
--------------------------------------------------------------------------------------------------------------------------------------------------------
Instructions to paragraph (a)(4):
1. Information should be provided as of the end of the registrant's
most recently completed fiscal year, except that, in the case of any
newly identified Portfolio Manager, information should be provided as
of the most recent practicable date. Specify the valuation date by
footnote or otherwise.
2. An individual is a ``beneficial owner'' of a security if he is a
``beneficial owner'' under either rule 13d-3 or rule 16a-1(a)(2) under
the Exchange Act (17 CFR 240.13.d-3 or 240.16a-1(a)(2)).
3. Provide the information required by the table on an aggregate
basis for each Portfolio Manager and his immediate family members.
4. For purposes of this Item, the term ``immediate family member''
means a person's spouse; child residing in the person's household
(including step and adoptive children); and any dependent of the
person, as defined in section 152 of the Internal Revenue Code (26
U.S.C. 152).
5. In disclosing the dollar range of securities owned by a
Portfolio Manager and his immediate family members in column (4), use
the following ranges: none, $1-$10,000, $10,001-$50,000, $50,001-
$100,000, $100,001-$500,000, $500,001-$1,000,000, or over $1,000,000.
(b) If the registrant is a closed-end management investment company
that is filing a report on this Form N-CSR other than an annual report,
disclose any change, as of the date of filing, in any of the Portfolio
Managers identified in response to paragraph (a)(1) of this Item in the
registrant's most recent annual report on Form N-CSR. In addition, for
any newly identified Portfolio Manager, provide the information
required by paragraph (a)(1) of this Item as of the date of filing of
the report and the information required by paragraphs (a)(2), (a)(3),
and (a)(4) of this Item as of the most recent practicable date.
* * * * *
Dated: March 11, 2004.
By the Commission.
J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 04-5951 Filed 3-16-04; 8:45 am]
BILLING CODE 8010-01-P