[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

[[Page 12755]]

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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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).
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \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\
---------------------------------------------------------------------------

    \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\
---------------------------------------------------------------------------

    \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\
---------------------------------------------------------------------------

    \79\ These figures are based on an estimated hourly wage rate of 
$78.48. See supra note 73.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

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).
---------------------------------------------------------------------------

     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)
--------------------------------------------------------------------------------------------------------------------------------------------------------
        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