SECURITIES AND EXCHANGE COMMISSION 17 CFR Parts 200, 229, 239, 240, 270, and 274 [Release Nos. 33Ä7037; 34Ä33350; ICÄ19957; S7Ä33Ä93] RIN 3235ÄAA69 Amendments to Proxy Rules for Registered Investment Companies AGENCY: Securities and Exchange Commission. ACTION: Proposed amendments to rules and forms. SUMMARY: The Securities and Exchange Commission (the "Commission'') is proposing for public comment amendments to the proxy rules applicable to registered investment companies under the Investment Company Act of 1940 and the Securities Exchange Act of 1934 to revise the information required in investment company proxy statements. The proposed amendments are intended to improve the disclosure provided to investment company shareholders in proxy statements. DATES: Comments must be received on or before March 18, 1994. ADDRESSES: Comments should be submitted in triplicate to Jonathan G. Katz, Secretary, Securities and Exchange Commission, 450 5th Street, NW., Washington, DC 20549. All comment letters should refer to File No. S7Ä33Ä93. All comments received will be available for public inspection and copying in the Commission's Public Reference Room, 450 5th Street, NW., Washington, DC 20549. FOR FURTHER INFORMATION CONTACT: Kathleen K. Clarke, Special Counsel, or Kenneth J. Berman, Deputy Chief, Office of Disclosure and Adviser Regulation, Division of Investment Management, (202) 272Ä2107, Securities and Exchange Commission, 450 Fifth Street, NW., Mail Stop 10Ä6, Washington, DC 20549. SUPPLEMENTARY INFORMATION: The Securities and Exchange Commission (the "Commission'') today is proposing for comment: (1) An amendment to Schedule 14A (17 CFR 240.14aÄ101) under the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) (the "1934 Act'') to add a new item 22 that would include the specific requirements applicable to the proxy statements of management investment companies ("funds'') registered under the Investment Company Act of 1940 (15 U.S.C. 80aÄ1 et seq.) (the "1940 Act''). Item 22 would replace rules 20aÄ2 (17 CFR 270.20aÄ2) and 20aÄ3 (17 CFR 270.20aÄ3) under the 1940 Act, which would be rescinded; (2) Corresponding amendments to the general requirements for proxies in Regulation 14A (17 CFR 240.14aÄ1) under section 14(a) of the 1934 Act (15 U.S.C. 78n(a)), including, among other things, items 7, 8, and 10 of Schedule 14A and related requirements of Regulation SÄK (17 CFR 229 et seq.), to clarify the requirements applicable to funds and to exempt funds from certain proxy disclosure requirements that are not relevant to funds; (3) Amendments to Forms NÄ1A (17 CFR 274.11A), NÄ2 (17 CFR 274.11aÄ1), and NÄ3 (17 CFR 274.11b) to conform the compensation disclosure requirements of those forms to the proposed proxy statement requirements; and (4) An amendment to Form NÄ14 (17 CFR 239.23), the registration statement form for the registration of securities issued by investment companies in business combination transactions, to require a comparative fee table in the disclosure documents delivered in connection with such transactions. The proposed amendments would update the fund proxy rules to reflect current matters on which fund shareholders are commonly asked to vote, improve the disclosure provided to shareholders, and simplify the preparation of fund proxy statements. Table of Contents Executive Summary I. Background II. Discussion A. Item 22 of Schedule 14A: Reorganization of Disclosure Rules B. General Provisions: Item 22(a) C. Election of Directors D. Management Compensation E. Approval of Investment Advisory Contract F. Approval of Distribution Plan G. Additional Fund Disclosure Requirements H. Other Matters I. Form NÄ14 III. General Request for Comments IV. Cost/Benefit of the Proposals V. Summary of Initial Regulatory Flexibility Analysis VI. Statutory Authority VII. Text of Proposed Rule Amendments Executive Summary The Commission is proposing to revise the disclosure requirements for fund proxy statements to update the proxy disclosure requirements for funds and to simplify the preparation of fund proxies. The proposed amendments would consolidate into a new item 22 in Schedule 14A disclosure requirements previously set forth in rules 20aÄ2 and 20aÄ3. The provisions of rules 20aÄ2(a) and 20aÄ2(b), as proposed to be modified, would be incorporated in proposed item 22. Proposed item 22 would include: (i) In paragraph (a), definitions applicable to item 22 and certain general requirements; (ii) In paragraph (b), disclosure requirements applicable to solicitations in connection with the election of directors; (iii) In paragraph (c), disclosure requirements applicable to solicitations in connection with approval of an investment advisory contract or an amendment thereto; and (iv) In paragraph (d), disclosure requirements applicable to solicitations in connection with a distribution plan pursuant to rule 12bÄ1 under the 1940 Act [17 CFR 270.12bÄ1]. Item 22 would eliminate certain of the current disclosure requirements concerning matters that are not directly relevant to solicitations to elect directors or to approve an investment advisory contract. New provisions would be added to improve the disclosure provided to shareholders, including, among other things, a table showing compensation paid to all directors. Item 22 also would specify information required in fund proxy statements when a fund seeks approval of a distribution plan under rule 12bÄ1. Rule 20aÄ1 would be retained, with minor technical and conforming changes, to implement the Commission's authority with respect to proxies under section 20(a) of the 1940 Act; rules 20aÄ2 and 20aÄ3 would be rescinded. The Commission also is proposing other amendments to the general proxy requirements in Regulation 14A and Schedule 14A, and related requirements in Regulation SÄK to accommodate proposed item 22 and to make certain requirements more appropriate to disclosure for funds. I. Background The 1940 Act proxy rules, adopted in 1960 under section 20(a) of the 1940 Act [15 U.S.C. 80aÄ20(a)],1 supplement the general proxy disclosure requirements in Regulation 14A under section 14(a) of the 1934 Act.2 The fund-specific proxy disclosure rules address certain matters expressly required by the 1940 Act to be submitted for shareholder approval, including the approval of an investment advisory contract and the election of members of the board of directors.3 ®1¯ Investment Company Act Rel. No. 2978 (Feb. 26, 1960) (25 FR 1865 (Mar. 3, 1960)). ®2¯ Section 20(a) provides the Commission with the authority to adopt rules regulating the solicitation of proxies by funds. On the effective date of the 1940 Act, the Commission adopted rule 20aÄ1 (17 CFR 240.20aÄ1) (originally rule NÄ20AÄ1) which, among other things, required fund proxy statements to include, as appropriate, the information required to be disclosed in non-investment company proxy statements by the rules adopted under section 14(a) of the 1934 Act. Investment Company Act Rel. No. 9 (Nov. 1, 1940) (5 FR 4366 (Nov. 5, 1940)). ®3¯ Section 15(a) (15 U.S.C. 80aÄ15(a)) requires shareholder approval of the investment advisory contract, and section 16(a) (15 U.S.C. 80aÄ16(a)) sets forth the requirements for the election of directors. Shareholder approval also is required under section 13 of the 1940 Act (15 U.S.C. 80aÄ13) when a fund: (i) changes its classification as an open-end or closed-end company or changes from a diversified to a non-diversified company; (ii) borrows money, issues senior securities, underwrites securities issued by others, purchases or sells real estate or commodities, or makes loans to other persons, except as stated in the recital of policy set forth in the fund's registration statement; (iii) deviates from the concentration policy set forth in its registration statement; (iv) deviates from any investment policy that is changeable only by a shareholder vote or that is a fundamental policy under section 8(b)(3) (15 U.S.C. 80aÄ8(b)(3)); or (v) changes the nature of its business so as to cease being an investment company. Shareholders also are required to ratify the selection of public accountants if an annual meeting is held. Section 32(a)(2) (15 U.S.C. 80aÄ31(a)(2)). Matters for which shareholder approval is required under section 13 or section 32(a)(2) (other than the selection of accountants which is addressed by item 9 of Schedule 14A) are not subject to special proxy rules under the 1940 Act; rather, they are required to be described in substantially the same detail as those matters specifically referred to in Schedule 14A. Item 20 of Schedule 14A. In the recent study of investment company regulation, Protecting Investors: A Half Century of Investment Company Regulation ("Protecting Investors Report''),4 the Division of Investment Management recognized the continuing importance of board of director oversight of investment company affairs, especially the "watchdog'' function performed by independent directors.5 The Division also emphasized that shareholder voting continues to play a valuable role in fund regulation.6 The information that must be sent to shareholders in connection with a vote serves to keep shareholders informed. In addition, the knowledge that shareholders must vote on matters, such as an increase in the investment adviser fee, operates as a deterrent to self-dealing. The proxy rules are designed to elicit disclosure that achieves these goals. ®4¯ Sec, Division of Investment Management, Protecting Investors: A Half Century of Investment Company Regulation, Corporate Governance 251Ä289 (May 1992). ®5¯ Protecting Investors Report at 253Ä254. ®6¯ Id. Consistent with the conclusions in the Protecting Investors Report, the Commission is proposing to update the proxy rules to reflect current matters on which fund shareholders are typically asked to vote and changes in the fund industry since the proxy rules were adopted in 1960.7 The amendments are designed to improve the disclosure provided to shareholders in fund proxy statements by placing greater emphasis on information that is directly relevant to specific matters submitted to a shareholder vote and by eliminating disclosure that may not be pertinent to the matters being voted upon and which is, in most cases, available in other disclosure documents. The proposed amendments are part of the Commission's continuing efforts to assure that material information is provided to fund investors in a concise, comprehensible format that facilitates investor decision-making.8 ®7¯ The Commission has, since 1960, adopted only one amendment to the 1940 Act proxy rules, amending rule 20aÄ2(a)(7) (17 CFR 270.20aÄ2(a)(7)) to require fund proxy statements to include specified information regarding the brokerage placement practices of investment advisers. Investment Company Act Rel. No. 10569 (Jan. 30, 1979) (44 FR 7869 (Feb. 7, 1979)). Other amendments have been proposed but not adopted. See Investment Company Act Rel. No. 3931 (Mar. 18, 1964) (29 FR 3777 (Mar. 26, 1964)) (proposed disclosure of certain adviser financial information and other information relating to underwriters and the principal underwriting contract); Investment Company Act Rel. No. 7087 (Mar. 31, 1972) (37 FR 6758 (Apr. 4, 1972)) (proposal to prohibit a fund from adjourning a shareholders' meeting if a properly constituted quorum was present). In a letter to the Director of the Division of Investment Management, dated July 1, 1986, the Investment Company Institute suggested revisions to the proxy rules applicable to funds to reflect the growth of, and changes in, the fund industry. ®8¯ See, e.g., Investment Company Act Rel. No. 19382 (Apr. 6, 1993) (58 FR 19050 (Apr. 12, 1993)) (adopting simplified financial highlights table and management's discussion of fund performance requirement for open-end funds); Investment Company Act Rel. No. 19342 (Mar. 5, 1993) (58 FR 1614 (Mar. 25, 1993)) (proposing to permit sales of mutual fund shares marketed directly to the public to proceed directly from off-the-page prospectuses); Investment Company Act Rel. No. 19115 (Nov. 20, 1992) (57 FR 56826 (Dec. 1, 1992)) (adopting fee table and simplified financial highlights table for closed-end fund prospectuses); Investment Company Act Rel. No. 16245 (Feb. 2, 1988) (53 FR 3868 (Feb. 10, 1988)) (adopting uniform formula for calculation of fund performance claims); Investment Company Act Rel. No. 16244 (Feb. 1, 1988) (53 FR 3192 (Feb. 4, 1988)) (adopting fee table for open-end fund prospectuses). II. Discussion A. Item 22 of Schedule 14A: Reorganization of Disclosure Rules Currently, funds preparing proxy statements must refer to several sets of rules relating to proxy statement disclosure, including Regulation 14A and Schedule 14A under the 1934 Act, Regulation SÄK,9 and rules 20aÄ2 and 20aÄ3 under the 1940 Act.10 The proposed amendments would simplify the preparation of proxies by consolidating into a new item 22 to Schedule 14A disclosure requirements previously set forth in rules 20aÄ2 and 20aÄ3. In addition, the proposed new item would be applicable to information statements required to be distributed by funds pursuant to recently adopted amendments to the 1934 Act.11 ®9¯ Regulation SÄK includes the generally applicable disclosure items for filings under, among other things, the 1934 Act. ®1¯ 0The other items in Schedule 14A would continue to be applicable, as appropriate, to fund proxy statements. Schedule 14A includes provisions governing the form and content of all proxy statements such as, among other things, information concerning the date, time, and place of the meeting of shareholders (item 1), amendments of the charter, by-laws or other corporate documents (item 19), and voting procedures (item 21). ®1¯ 1Amendments to section 14(c) of the 1934 Act (15 U.S.C. 78n(c)) were enacted in the Shareholder Communications Improvement Act of 1990 ("SCIA''). Pub. L. 101Ä550, 104 Stat. 2713. When proxies are not solicited in connection with a shareholder meeting, issuers of securities registered under section 12 of the 1934 Act (15 U.S.C. 781) are required by section 14(c) to transmit to shareholders information substantially similar to that contained in the proxy statement. These requirements are set forth in Regulation 14C (17 CFR 240.14cÄ1) and Schedule 14C thereto (17 CFR 240.14cÄ101). Schedule 14C refers to Schedule 14A for most of the requirements for information statements. Under the SCIA amendments, funds are now subject to the information statement requirement. Rules implementing the change were adopted by the Commission on January 3, 1992. Investment Company Act Rel. No. 18467 (Jan. 6, 1992) (57 FR 1096 (Jan. 10, 1992)). The provisions of rules 20aÄ2(a) (17 CFR 270.20aÄ2(a)) and 20aÄ2(b) (17 CFR 270.20aÄ2(b)), as proposed to be modified, would be incorporated in proposed item 22. As discussed in more detail below, certain of these provisions would be deleted and new provisions would be added, including, among other things, a table showing compensation paid to all directors. In addition, item 22 would specify information required in fund proxy statements when a fund seeks approval of a distribution plan under rule 12bÄ1. Rule 20aÄ1 would be retained, with minor technical and conforming changes, to implement the Commission's authority with respect to proxies under section 20(a) of the 1940 Act;12 rules 20aÄ2 and 20aÄ3 would be rescinded. ®1¯ 2The Commission is proposing minor technical amendments to rule 20aÄ1 to delete references to rules 20aÄ2 and 20aÄ3 and to add references to, among other things, Regulation 14A and Schedule 14A. In addition, the filing fee requirement in rule 20aÄ1(c) (17 CFR 270.20aÄ1(c)) would be moved to subparagraph (a)(2) of proposed item 22. The proposed amendments would not modify the basic format of fund proxy statements. Item 22 would include a new requirement concerning the format for disclosure, however, when one proxy statement solicits shareholder votes for more than one fund or for multiple portfolios of series investment companies ("series funds'').13 While this manner of solicitation is more efficient and less costly, it may be confusing to shareholders. Therefore, the Commission is proposing that, when a fund proxy statement includes multiple proposals requiring the separate vote of shareholders of more than one fund or portfolio of a series fund, the fund includes a table at the beginning of the proxy statement summarizing each proposal and indicating which fund or series shareholders are being requested to approve each proposal.14 This proposal would improve the proxy disclosure by allowing shareholders to direct their attention to proposals that are applicable to the fund or portfolio in which they invest. Comment is requested on other methods of clarifying the presentation of multiple proposals in fund proxy statements, such as requiring separate proxy statement "supplements'' for each fund or portfolio describing the matters applicable to that fund or portfolio.15 ®1¯ 3A series fund is a fund comprised of two or more portfolios, each of which has a distinct investment objective with assets specifically allocated to that portfolio; investors' interests in such a fund are limited to those portfolios in which they invest. Each portfolio operates for many purposes like a separate fund although the portfolios are all part of the same business entity with one board of directors. Series funds are specifically permitted under section 18(f)(2) of the 1940 Act [15 U.S.C. 80aÄ18(f)(2)]. ®1¯ 4Subparagraph (a)(3)(ii) of proposed item 22. To assure that shareholders are not confused in casting their vote, a separate proxy card is required for each fund or portfolio. ®1¯ 5See, e.g., item 902 of Regulation SÄK (17 CFR 229.902) (requiring separate disclosure supplements for each entity proposed to be included in certain "roll-up'' transactions). B. General Provisions: Item 22(a) As proposed, paragraph (a) of item 22 would provide the definition of terms used in item 22.16 Item 22(a) also would include general proxy disclosure requirements, such as the name and address of the fund's investment adviser, principal underwriter, and administrator,17 and would contain the filing fee requirements.18 In addition, item 22(a) would require, as is currently required by rule 20aÄ2, disclosure of transactions by directors in the securities of the investment adviser or its parent(s) or subsidiaries in proxy solicitations involving the election of directors or approval of an investment advisory contract.19 This disclosure provides information about potential conflicts of interests of directors.20 ®1¯ 6The proposed definitions in subparagraph (a)(1) would include, among other things, certain definitions that currently appear in rule 8bÄ2 under the 1940 Act (17 CFR 270.8bÄ2) that were previously referred to in rule 20aÄ2(c) (17 CFR 270.20aÄ2(c)). ®1¯ 7Subparagraph (a)(3)(i) of proposed item 22. "Administrator'' would be defined, as it is in item 5(c) of Form NÄ1A, as any person or persons who provide significant administrative or business management services to the fund. Subparagraph (a)(1)(i) of proposed item 22. ®1¯ 8Subparagraph (a)(2) of proposed item 22. The filing fee would continue to be $125. ®1¯ 9Rule 20aÄ2(a)(8) [17 CFR 270.20aÄ2(a)(8)]. Subparagraph (a)(4) of proposed item 22. ®2¯ 0The proposed item would not require disclosure of information, as is currently required by rule 20aÄ2(a)(8), about securities transactions by officers of the fund (who generally are employees of the investment adviser) or officers, general partners, or parents of the investment adviser in the securities of the investment adviser. These transactions may not be relevant to proxy statements related to the election of directors or the approval of an investment advisory contract. Item 22(a) would require fund proxy statements seeking approval of proposals that would increase fees or expenses to include a comparative fee table showing the amount of fees and expenses currently paid by fund shareholders and the amount of fees and expenses shareholders would have paid if the matter being voted on had been in effect.21 The fee table is intended to assist shareholders in assessing the full effect of a proposed fee increase.22 ®2¯ 1Subparagraph (a)(3)(iii) of proposed item 22. This requirement would apply to proposals that would cause an increase in fees directly, such as a proposal to increase the investment advisory fee, or indirectly, such as a change of investment adviser that would result in an increase in other expenses. These fees could include administrative, custodial, or transfer agent fees. The proposed fee table would be required to be prepared in accordance with the applicable items of Form NÄ1A, in the case of a open-end fund, Form NÄ2, in the case of a closed-end fund, or Form NÄ3, in the case of investment companies that are separate accounts offering variable annuity contracts. ®2¯ 2A narrative description of the effect of the proposed fee, in lieu of the fee table, would be required where approval is sought only for a change in asset breakpoints that would not have increased the fee for previous years because the assets of the fund have not reached the breakpoint. Instruction 1 to subparagraph (a)(2)(iii) of proposed item 22. The Commission is proposing to include in item 22(a) a requirement that a fund state in the proxy statement whether it intends to inform shareholders of the voting results in a periodic report or other document transmitted to shareholders.23 Funds currently report voting results in Form NÄSAR [17 CFR 274.101], the fund semi-annual report filed with the Commission; however, filings on Form NÄSAR are not disseminated to shareholders. ®2¯ 3Subparagraph (a)(3)(iv) of proposed item 22. C. Election of Directors The 1940 Act and the Commission's rules assign important responsibilities to fund directors,24 who are required to be elected by shareholders.25 The Division of Investment Management examined the role of directors in the Protecting Investors Report and concluded that the oversight function performed by the board of directors, particularly independent directors, benefits investors.26 In particular, the Protecting Investors Report emphasized the central role of directors under the 1940 Act in policing potential conflicts of interest between a fund and its investment adviser.27 ®2¯ 4These responsibilities include, among other things: (i) evaluation and approval of the investment advisory contract (sections 15(a) and 15(c) (15 U.S.C. 80aÄ15(c))), the principal underwriting contract (section 15(c)), and use of fund assets for the distribution of shares (rule 12bÄ1); (ii) selection of independent public accountants (section 32(a)(1) (15 U.S.C. 80aÄ31(a)(1))); (iii) oversight of securities transactions with affiliates to the extent such transactions are permitted under various rules (section 10(f) (15 U.S.C. 80aÄ10(f)) and rule 10fÄ3 (17 CFR 270.10fÄ3), section 17(a) (15 U.S.C. 80aÄ17(a)) and rule 17aÄ7 (17 CFR 270.17aÄ7), and section 17(e) (15 U.S.C. 80aÄ17(e)) and rule 17eÄ1 (17 CFR 270.17eÄ1)); (iv) approval and oversight of certain portfolio security depositary arrangements (section 17(f) (15 U.S.C. 80aÄ17(f)) and rule 17fÄ4 (17 CFR 270.17fÄ4)); (v) approval of certain procedures relating to the calculation of the fund's net asset value (section 2(a)(41) (15 U.S.C. 80aÄ2(a)(41)), section 22(c) (15 U.S.C. 80aÄ22(c)) and rule 22cÄ1 (17 CFR 270.22cÄ1)); (vi) approval of size of repurchase offer and adoption of procedures regarding portfolio liquidity for repurchase offers by closed-end management investment companies (rule 23cÄ3 (17 CFR 270.23cÄ3)); and (vii) various determinations in connection with the establishment of a stable per share price and the portfolio management of a "money market'' fund (rule 2aÄ7 (17 CFR 270.2aÄ7)). In addition, directors are subject to general standards of fiduciary duty to the fund and its shareholders under the 1940 Act (section 36(a) of the 1940 Act (15 U.S.C. 80aÄ35(a))) and under state law, see 3 Fletcher CYC Corp.  838; Hanson Trust plc v. MLSCM Acquisition, Inc., 781 F.2d 264, 275 (2d Cir. 1986); Smith v. Van Gorkom, 488 A.2d 858, 872Ä73 (Del. 1985); see also Burks v. Lasker, 441 U.S. 471 (1979). ®2¯ 5Section 16(a). The 1940 Act does not require that shareholders annually elect directors. Section 16(a) generally provides that no person shall serve as a director of a fund unless elected by shareholders; however, it also provides that vacancies occurring between shareholder meetings may be filled in any otherwise legal manner, if, immediately after filling the vacancy, at least two-thirds of the directors have been elected by shareholders. If, at any time, less than a majority of a fund's directors have been elected by shareholders, section 16(a) requires the fund to convene promptly a shareholder meeting to fill any existing vacancies. Unless these provisions of the 1940 Act are applicable, the frequency of election of directors is governed by state law. John Nuveen & Co. Inc. (pub. avail. Nov. 18, 1986); Lutheran Brotherhood Money Market Fund, Inc. (pub. avail. Mar. 10, 1983). For historical and other reasons, most funds are organized under the laws of Massachusetts or Maryland. The organizational and operational requirements of Massachusetts business trusts are not specified by statute, and a fund's essential structure is contained in the trust agreement, which generally includes a provision eliminating the need for annual shareholder meetings to elect directors. See generally Jones, Moret and Storey, The Massachusetts Business Trust and Registered Investment Companies, 13 Del. J. of Corp. L. 421 (1988). Maryland amended its corporate code in 1989 to permit fund charters or by-laws to provide that annual meetings are not required to be held in any year in which the election of directors is not required by the 1940 Act. Maryland Corporations Code  2Ä501(b). ®2¯ 6Protecting Investors Report at 253. The Division recommended, however, some changes to improve the structure and responsibilities of fund boards of directors. To enhance board independence, the Division recommended amending section 10(a) of the 1940 Act (15 U.S.C. 80aÄ10) to require a majority of the directors be independent instead of, as is now required, at least 40%. Id. at 266. The Division also recommended eliminating requirements in 1940 Act rules that unnecessarily burden directors with consideration of operational matters in order to allow directors to devote their attention to important conflict of interest issues. Id. In accordance with this recommendation, the Commission recently adopted amendments that eliminate annual review requirements in rules 10fÄ3, 17aÄ7, 17eÄ1, 17fÄ4, and 22cÄ1 and require instead that directors make and approve changes only when necessary. Investment Company Act Rel. No. 19719 (Sept. 17, 1993) (58 FR 49919 (Sept. 24, 1993)). ®2¯ 7Protecting Investors Report at 255. The disclosure requirements for directors are designed to inform shareholders about a director's background, as well as associations that could affect the independence of directors. Thus, when funds solicit votes for the election of directors, the proxy statement must include disclosure under the 1940 Act proxy rules about the relationships and transactions between a director28 and the fund's investment advisers,29 in addition to the more general disclosure concerning directors called for by items 7 and 8 of Schedule 14A.30 Item 22 would continue to include these requirements,31 with proposed modifications as described below. ®2¯ 8The term director as used hereinafter includes nominees for director, or in the case of a Massachusetts business trust, trustees or nominees for trustee, unless the context otherwise requires. ®2¯ 9Rule 20aÄ2(a). ®3¯ 0Item 7 (by reference to Regulation SÄK) requires information on, among other things, certain material legal proceedings adverse to the fund involving directors (instruction 4, item 103 of Regulation SÄK (17 CFR 229.103)), the identity of directors and their business experience (item 401 of Regulation SÄK), and certain relationships and related transactions (item 404 of Regulation SÄK (17 CFR 229.404)). Under item 7(e), disclosure also is required concerning audit, nominating, and compensation committees of the board of directors. Item 8 requires information on director compensation (by reference to item 402 of Regulation SÄK (17 CFR 229.402)). ®3¯ 1As under current rules, proposed item 22(b) would, among other things, require (i) disclosure of whether a director is an officer, employee, director, partner, or shareholder of the investment adviser (subparagraph (b)(1)); (ii) information concerning any material interest that the director has in the fund's principal underwriter or administrator (subparagraph (b)(2)); and (iii) information concerning material transactions between the director and the fund's investment adviser, administrator or distributor or any of their respective parents and subsidiaries (subparagraph (b)(3)). (1) Item 22(b) would require information concerning the director's relationships or transactions with fund administrators as well as investment advisers and underwriters. Such relationships may pose potential conflicts of interest of which fund shareholders should be aware.32 ®3¯ 2Subparagraph (b)(2) of proposed item 22. (2) Item 22(b) would require expanded disclosure of whether the director previously had a material interest in, or relationship with, the investment adviser, principal underwriter, administrator, or any of their respective affiliates.33 Even if the director is no longer an "interested person,''34 his or her prior relationships with fund affiliates may be material to a shareholder's assessment of the nominee's independence. The Commission requests comment on whether disclosure of past relationships should be limited to a specified period, e.g., five or ten years, or a longer or shorter period. ®3¯ 3Subparagraphs (b)(1) and (2) of proposed item 22. ®3¯ 4Section 10 of the 1940 Act generally requires that at least 40% of a fund's board of directors consist of persons who are not "interested persons'' (as defined in Section 2(a)(19) of the 1940 Act (15 U.S.C. 80aÄ2(a)(19))) of the fund. Congress intended that the independent directors "supply an independent check on management and provide a means for the representation of shareholder interests in investment company affairs.'' S. Rep. No. 91Ä184, 91st Cong., 1st Sess. 32 (1969). (3) Item 22(b) would require a description of any non-routine litigation in which a director or an affiliated person is a party adverse to the fund or any of its affiliated persons.35 This new item would replace item 7(a) of Schedule 14A with a requirement more specifically tailored to funds. ®3¯ 5Subparagraph (b)(5) of proposed item 22. (4) The proposed amendments would not include detailed disclosure currently required regarding the investment adviser (for example, a certified balance sheet of the adviser),36 the investment advisory contract,37 and brokerage commission practices.38 This information may not be directly relevant to the election of directors. Moreover, most of this information is available to shareholders in other fund disclosure documents.39 ®3¯ 6Rules 20aÄ2(a) (1)Ä(4) and 20aÄ2(a)(9) (17 CFR 270.20aÄ2(a) (1)Ä(4) and (9)). ®3¯ 7Rule 20aÄ2(a)(6) (17 CFR 270.20aÄ2(a)(6)). ®3¯ 8Rule 20aÄ2(a)(7). ®3¯ 9Information concerning the investment advisory contract is set forth in a fund's prospectus. Forms NÄ1A (items 2 and 5), NÄ2 (items 3 and 9), and NÄ3 (items 3 and 6). Brokerage information is required in the fund's Statement of Additional Information ("SAI''), which is part of the two-part disclosure documents required to be furnished or made available to investors. Forms NÄ1A (item 17), NÄ2 (item 21), and NÄ3 (item 22). To simplify the preparation of fund proxies, the Commission is proposing to incorporate the director-specific information required by paragraphs (b) and (d) of item 7 of Schedule 14A into item 22.40 Directors who are "interested persons'' of the fund would continue to be identified with an asterisk and a description of the relationships, events or transactions that cause such persons to be "interested.''41 ®4¯ 0Subparagraph (b)(4) of proposed item 22. By its terms, the provisions of paragraph (c) of item 7 are not applicable to funds. Investment companies would continue to be subject to the general corporate governance disclosure requirements in paragraphs (e)Ä(g) of item 7. These requirements include the identification and composition of committees of the board (paragraph (e)), the number of meetings of the board (paragraph (f)), and disclosure of disagreements associated with the resignation of a director (paragraph (g)). The disclosure required by proposed subparagraph (b)(4) also applies to officers of the fund as is currently required by paragraph (b) of item 7. Subparagraph (b)(4) would, however, limit the information required for separate accounts sponsored by insurance companies to that relating to executive officers of the sponsoring insurance company who are directly or indirectly engaged in activities relating to the separate accounts. Instruction 2 to subparagraph (b)(4) of proposed item 22. This amendment would eliminate extended disclosure concerning officers of the sponsoring insurance company who are not involved in the administration of the separate account. ®4¯ 1Instruction 1 to paragraph (4) of proposed item 22(b). Another proposed amendment would modify the requirement for a listing of all the other directorships of a director.42 Directors frequently serve on many boards of funds in the same fund complex.43 Under such circumstances, disclosure of this information results in long lists of directorships for related funds that may not provide shareholders with information about the qualifications and other competing responsibilities of a director. Funds would be required to state, if applicable, that a director serves on the board of other funds in the identified fund complex and to specify the number of the boards on which the director serves.44 The Commission requests comment on whether other director disclosure requirements may be appropriate to assure that proxy statements provide useful information about directors to shareholders. ®4¯ 2Item 7(b) requires this information by reference to item 401(e) of Regulation SÄK. ®4¯ 3Item 22 would include a definition of fund complex. See infra note 49 and accompanying text. ®4¯ 4Proposed instruction to item 401(e) of Regulation SÄK. The modification would apply to documents and reports by all issuers (not only funds) that are required to provide the information about fund directorships called for by item 401(e). Information concerning service as a director of other companies, including companies registered under section 12 of the 1934 Act, would continue to be required. D. Management Compensation Fund proxy statements are required to include information in proxy statements about the compensation of fund directors and officers in connection with the election of directors or proposals seeking shareholder approval of benefit plans in which directors or officers will participate. These requirements are now included in item 8 of Schedule 14A, which references Regulation SÄK and fund registration statement forms.45 The Commission is proposing amendments that would consolidate the disclosure requirements for management compensation paid by funds to directors and officers in paragraph (b) of item 22.46 The proposed disclosure would reformat existing requirements and expand the information provided for directors, particularly in the case of directors who serve as such for more than one fund in a fund complex, as defined in item 22. These directors often receive substantial annual fees for their activities on a number of boards of funds sponsored by a single investment adviser or underwriter, although the amount paid by a single fund (and disclosed to shareholders) may not be particularly significant. In addition, many fund complexes have established retirement plans for their independent directors. The aggregate benefit package that a director receives as a result of his or her relationship to a fund complex could be material to a shareholder's assessment of the director's independence. ®4¯ 5Item 8 of Schedule 14A (by reference to item 402(g) of Regulation SÄK). Item 8 also incorporates for funds the management compensation disclosure requirements in fund registration statements forms. Forms NÄ1A (item 14), NÄ2 (item 18), and NÄ3 (item 20). Prior to recent revisions to the management compensation disclosure for operating companies, funds had been subject to the general compensation disclosure requirements of item 402. In the recent revisions, funds were excluded from amended item 402 and instead made subject to the registration statement form requirements. Securities Act Rel. No. 6962 (Oct. 16, 1992) (57 FR 48125 (Oct. 21, 1992)). ®4¯ 6Subparagraph (b)(6) of proposed item 22. Currently, funds must disclose in proxy statements related to the election of directors or approval of benefit plans for directors compensation paid to directors under any standard arrangements. This disclosure also must include any other arrangements that will result in compensation to a director (such as consulting agreements). The required information about compensation is limited to compensation paid to the director by the fund soliciting the proxy statement. The Commission is proposing to revise this disclosure to require a compensation table setting forth for each director: (i) Aggregate compensation paid by the fund; (ii) the total compensation received from all funds in a fund complex on the boards of which the director serves; (iii) pension or retirement benefits accrued during the year; and (iv) estimated annual benefits upon retirement. In addition, item 22(b) would require a description of the material provisions of any pension or other benefit plan applicable to directors and other arrangements under which a director may be compensated.47 The proposed format is intended to set forth director compensation more clearly, to provide better disclosure of benefits other than compensation received by a director, and, for directors who serve on the boards of more than one fund in a fund complex, to furnish more comprehensive information about the director's total compensation.48 ®4¯ 7Similar disclosure would be required with respect to plans affecting officer compensation. In addition, business development companies would disclose in proxies information concerning options granted to officers or directors that is currently required by item 402 of Regulation SÄK. ®4¯ 8When a fund seeks shareholder approval of a benefit plan, funds also will be required to include the information required by item 10 of Schedule 14A as proposed to be modified to address specific fund issues. Proposed item 22 would define fund complex as two or more funds that have a common investment adviser (or which have advisers that are affiliates) or, with respect to open-end funds, a common principal underwriter.49 The Commission requests comment on whether this definition will serve to elicit relevant information about compensation paid to directors by related entities. For example, should the definition also include funds with common administrators? ®4¯ 9Subparagraph (a)(1)(vi) of proposed item 22. The compensation disclosure required for fund officers would remain the same under the proposed amendments except for minor revisions. Because most funds are externally managed, fund executive officers generally do not have formal management roles and receive no compensation from the fund. As currently required, however, compensation received by the three highest paid executive officers having aggregate compensation from a fund exceeding $60,000 would have to be disclosed in the compensation table. To make the disclosure of management compensation uniform, the compensation disclosure required to appear in the SAI portion of a fund's registration statements would be amended to be consistent with item 22.50 In addition, to alert prospective investors that this information, as well as information concerning the background of fund management, is available in the SAI, the Commission is proposing to amend fund registration statement forms to require that a statement to this effect appear in the prospectus.51 ®5¯ 0Forms NÄ1A (item 14), NÄ2 (item 18), and NÄ3 (item 20). ®5¯ 1Proposed amendments to Forms NÄ1A (item 5(a)), NÄ2 (item 9.1.d), and NÄ3 (item 6(a)). As is currently the case, however, fund registration statements also would require disclosure of the compensation received by certain affiliated persons and members of the fund's advisory board. E. Approval of Investment Advisory Contract Approval of the investment advisory contract is one of the express shareholder voting requirements in the 1940 Act.52 Specific disclosure requirements for proxies solicited in connection with the approval of an investment advisory contract are currently included in rule 20aÄ2(b), and these requirements, as proposed to be modified, would be set forth in paragraph (c) of item 22. Proxy statements must include, among other things, information concerning the investment adviser,53 the existing investment advisory contract, if any,54 the circumstances, if applicable, of any action or termination or proposed termination of the existing investment advisory contract,55 and the nature of action to be taken on the advisory contract.56 The Commission is proposing to modify certain of the disclosure requirements as described below. ®5¯ 2Section 15(a). ®5¯ 3These requirements include: the name, address and principal occupation of the principal executive officer and each director or general partner of the adviser (rule 20aÄ2(b)(1) (17 CFR 270.20aÄ2(b)(1)) incorporating rule 20aÄ2(a)(2); proposed subparagraph (c)(2) of item 22); the names and addresses of all parents of the adviser and the basis for control (rule 20aÄ2(b)(1) incorporating rule 20aÄ2(a)(3); proposed subparagraph (c)(3) of item 22); the beneficial owners of 10% or more of the securities of the adviser (rule 20aÄ2(b)(1) incorporating rule 20aÄ2(a)(4); proposed subparagraph (c)(4) of item 22); and the identification of any director of the fund that is an officer, director, or has a material interest in the investment adviser (rule 20aÄ2(b)(1) incorporating rule 20aÄ2(a)(5) (17 CFR 270.20aÄ2(a)(5)); proposed subparagraph (c)(5) of item 22). ®5¯ 4Current rule 20aÄ2(b)(1) incorporating rule 20aÄ2(a)(1); proposed subparagraph (c)(1) of item 22. ®5¯ 5These requirements are included in rules 20aÄ2(a)(6) and (10) (17 CFR 270.20aÄ2(a)(10)) (incorporated by 20aÄ2(b)(1)) and would be included in subparagraph (c)(1) of proposed item 22. ®5¯ 6Current rule 20aÄ2(b)(2) (17 CFR 270.20aÄ2(b)(2)); proposed subparagraph (c)(8) of item 22. If a change in the investment advisory fee is sought, additional disclosure concerning the current and proposed fee is proposed. Subparagraph (c)(9) of proposed item 22 would require disclosure of the aggregate amount of the investment adviser's fee for the last year, the amount the adviser would have received had the proposed fee been in effect, and the percentage amount of the proposed increase. (1) The requirement that, among other things, all general partners of the investment adviser be identified57 would be limited to those general partners of the investment adviser receiving the five largest economic interests in the partnership or having significant management responsibilities.58 Comment is requested on whether general partners that have significant management responsibilities relating to the fund also should be identified. ®5¯ 7Rule 20aÄ2(b)(1) incorporating rule 20aÄ2(a)(2). ®5¯ 8Subparagraph (c)(2) of proposed item 22. (2) A new item would be added to require a discussion of the material factors considered by the board in recommending that fund shareholders approve an investment advisory contract.59 This disclosure would include a general discussion of the type of information considered by directors in fulfilling their responsibilities under section 15(c) of the 1940 Act to evaluate the terms of an investment advisory contract.60 These factors may include, among other things, the qualifications of the investment adviser, the range of services provided by the investment adviser, and the financial condition of the adviser. Comment is requested on whether these or any other factors should be specifically required to be discussed. ®5¯ 9Subparagraph (c)(11) of proposed item 22. ®6¯ 0Section 15(c) requires fund directors to request and to assess such information as may be necessary to evaluate the terms of an investment advisory contract. (3) Under the current rules, funds must disclose the rate and amount of the advisory fee charged to each of any other funds advised by the investment adviser.61 This requirement may result in a long list of funds and fees and may convey minimal useful information because different fees may reflect differences in fund size, investment policies, and other factors that are not disclosed in the proxy statement. Therefore, the Commission is proposing to require the disclosure of fees paid to the investment adviser by other funds, if any, with substantially similar investment objectives.62 For example, the adviser of a fund that primarily invests in domestic equity securities would disclose the rate and amount of advisory fees for other funds it advises that primarily invest in domestic equity securities. ®6¯ 1Rule 20aÄ2(b)(4) (17 CFR 270.20aÄ2(b)(4)). ®6¯ 2Subparagraph (c)(10) of proposed item 22. (4) Currently, funds must disclose extensive information concerning brokerage allocation and commissions.63 This information is duplicative of disclosure required in other documents64 and may not be directly relevant to evaluation of an investment advisory contract proposal. Therefore, the Commission is proposing amendments to require disclosure of only the amount and percentage of brokerage commissions paid to affiliates of the investment adviser.65 Item 22 also would require similar compensation information for other entities affiliated with the investment adviser that provide services to the fund, such as transfer agents or custodians.66 ®6¯ 3Rule 20aÄ2(a)(7). ®6¯ 4See supra note 39 and accompanying text. ®6¯ 5Subparagraph (c)(13) of proposed item 22. A discussion of soft dollar arrangements benefitting the investment adviser would be required in the proposed discussion of material factors considered by the board of directors in approving the investment advisory contract in item 22(c)(11). ®6¯ 6Subparagraph (c)(14) of proposed item 22. (5) The Commission also is proposing to eliminate the requirement that a proxy statement seeking a shareholder vote on the advisory contract contain a certified balance sheet of the adviser.67 This requirement is intended to permit shareholders to evaluate the financial capabilities of the investment adviser. The Commission believes that the evaluation of the financial condition of the adviser may be more appropriately the responsibility of the Board of Directors in formulating a recommendation to approve the advisory contract.68 In lieu of the balance sheet, item 22 would require that funds disclose in their proxy statements any financial condition of the adviser that is reasonably likely to impair the financial ability of the adviser to fulfill its commitment to the fund under the proposed advisory contract.69 This requirement is consistent with the existing requirement that an adviser to a fund must disclose to the fund any financial condition that is reasonably likely to impair its ability to fulfill its contractual commitments.70 ®6¯ 7Rule 20aÄ2(b)(1) incorporating rule 20aÄ2(a)(9). As discussed in section II.C., supra, the balance sheet also would not be required in connection with the election of directors because it is not directly relevant to a shareholder vote on directors. ®6¯ 8Moreover, funds have encountered difficulties in coordinating the preparation of the adviser's certified balance sheet with the printing of the proxy statements. See Dreyfus Connecticut Municipal Money Market Fund (pub. avail. Dec. 5, 1990). ®6¯ 9Subparagraph (c)(7) of proposed item 22. ®7¯ 0Rule 206(4)Ä4(a)(1) [17 CFR 275.206(4)Ä4(a)(1)] under the Investment Advisers Act of 1940 (15 U.S.C. 80bÄ1 et seq.). Approval of Distribution Plan Rule 12bÄ1 under the 1940 Act permits the use of fund assets to finance the distribution of shares under certain conditions, one of which is shareholder approval of a distribution plan ("Rule 12bÄ1 Plan'') and amendments to a Rule 12bÄ1 Plan that would materially increase the amount spent for distribution.71 There are currently no express proxy statement disclosure requirements regarding the submission of a Rule 12bÄ1 Plan for shareholder approval. Because of the importance of such a shareholder vote, the Commission is proposing to amend the proxy rules to address consideration of a Rule 12bÄ1 Plan and plan amendments. These proposed requirements reflect, in many respects, disclosure currently made in proxy statements. ®7¯ 1The Commission adopted rule 12bÄ1 in 1980. Investment Company Act Rel. No. 11414 (Oct. 28, 1980) (45 FR 73898 (Nov. 7, 1980)). Paragraph (d) of proposed item 22 would set forth the disclosure requirements for fund proxy statements that solicit shareholder approval of Rule 12bÄ1 Plans (or amendments).72 Item 22(d) would require a description of the proposed action and the reasons shareholders are being requested to vote on adoption (or amendment) of a Rule 12bÄ1 Plan.73 In addition, when the effect of the action would be to increase fund expenses, item 22(a) would require inclusion of a comparative fee table showing the level of fees before and after adoption of the recommended Rule 12bÄ1 Plan.74 ®7¯ 2A number of funds have obtained exemptive orders permitting the issuance of more than one class of securities, with each class subject to a different distribution arrangement, but representing interests in the same portfolio of investments. The Commission recently issued a release proposing rule and form amendments that would permit funds to issue multiple classes of securities, which would obviate the need for funds to apply for exemptions. Investment Company Act Rel. No. 19955 (Dec. 16, 1993). Proposed amendments to rule 12bÄ1 would, consistent with the exemptive orders for multiple class funds, require Rule 12bÄ1 Plans to have severable provisions for each class, and for any action on a Rule 12bÄ1 Plan to be taken separately for each class. An instruction to item 22(d) would require a multiple class fund to furnish information (including the comparative fee table) in proxy statements on a class rather than fund basis in order to provide class shareholders with material information concerning the distribution arrangements applicable to them. The proposed instruction also would require a discussion of the differences among classes and the distribution fee, if any, paid by each class. ®7¯ 3Subparagraph (d)(1) of proposed item 22. ®7¯ 4Subparagraph (a)(3)(iii) of proposed item 22. If the fund has been operating under a Rule 12bÄ1 Plan, proposed item 22(d) would require disclosure of material differences between the proposed and current Rule 12bÄ1 Plan. In addition, item 22(d) would require disclosure about distribution expenses under the plan paid by the fund during the last fiscal year to the fund's investment adviser, principal underwriter, administrator, or any of their affiliated persons, and to persons receiving 10% or more of the fund's aggregate distribution fees.75 Finally, item 22(d) would require disclosure about the factors the board of directors considered in recommending adoption of (or amendment to) the Rule 12bÄ1 Plan.76 ®7¯ 5Subparagraph (d)(2)(iv) of proposed item 22. ®7¯ 6Subparagraph (d)(4) of proposed item 22. G. Additional Fund Disclosure Requirements The Commission requests comment on whether the proxy rules should contain other specific fund-related disclosure requirements. For example, funds must seek shareholder approval of a new investment advisory contract in the event of a change of control of the investment adviser.77 The proxy statement seeking approval of the new investment advisory contract must describe material aspects of the transaction and its effect on fund shareholders. The Commission requests comment on whether specific proxy disclosure requirements may be needed for proxy statements relating to change-in-control transactions. ®7¯ 7A change of control causes an assignment of the investment advisory contract, which results, under section 15(a)(4) of the 1940 Act (15 U.S.C. 80aÄ15(a)(4)), in an automatic termination of the contract. In such event, the fund will be required to seek shareholder approval of a new investment advisory contract. Rule 15aÄ4 (17 CFR 270.15aÄ4) provides a temporary exception from the shareholder approval requirement, but it is only available for unforeseeable assignments of an investment advisory contract. Rule 15aÄ4 specifically does not apply to an assignment when the investment adviser receives money or other benefit. Section 15(f) of the 1940 Act (15 U.S.C. 80aÄ15(f)) provides protection against the occurrence of fiduciary liability for the sale of an investment adviser if certain conditions to safeguard fund shareholders are met. Specifically, section 15(f) requires that (i) for at least three years after the acquisition, at least 75% of the board of directors of the acquired fund must consist of persons who are not "interested persons'' of the investment adviser, and (ii) no unfair burden is imposed on the fund as a result of the acquisition. The Commission also requests comment on whether special disclosure requirements should be required for other types of corporate reorganizations, such as fund mergers. For example, should there be greater disclosure concerning the bases on which the merging funds' boards of directors determined that the transaction is in the best interests of the funds? Should there be more specific disclosure on how the expenses of the transaction are allocated among the funds and the investment adviser, particularly where the fund merger follows or relates to the merger of two investment advisers.78 ®7¯ 8The surviving investment adviser will often combine funds that have similar investment objectives to achieve greater economies of scale or to avoid offering competing funds. H. Other Matters Rule 14aÄ3(b) (17 CFR 240.14aÄ3(b)) under the 1934 Act requires that, when directors are to be elected at an annual or special meeting, funds furnish each person solicited with a proxy statement that is accompanied or preceded by an annual report to shareholders. Rule 30dÄ1 (17 CFR 270.30dÄ1) requires an annual report to be transmitted to shareholders 60 days after the end of a fund's fiscal year. For various reasons, fund shareholder meetings may not coincide with the mailing of the annual shareholder report. Where the annual report has been previously transmitted, questions arise concerning whether rule 14aÄ3(b) requires funds to remail the annual report to shareholders entitled to vote at the meeting or to mail the annual report to new shareholders who may not have received an annual report mailed earlier in the year.79 A second mailing of the annual report, whether to new shareholders or all shareholders, may result in considerable expense for the fund. In addition, issues may arise concerning whether the annual report is current when several months have passed since transmittal of the annual report or the fund has issued a semi-annual report in the interim between the transmittal of the annual report and the shareholder meeting. ®7¯ 9The Division has granted no-action relief concerning the rule 14aÄ3 annual report requirement under certain "compelling circumstances'' when a shareholder meeting is held after the end of a fund's latest fiscal year but before the annual report is available. Dean Witter American Value Fund (pub. avail. Nov. 18, 1992). The no-action relief required compliance with certain conditions to assure adequate disclosure to shareholders including that: (i) the fund's latest annual and semi-annual report accompany or precede the proxy statement; (ii) the fund's proxy statement include a statement from the board of directors that no material adverse change in the financial operations of the fund have occurred since the date of the fund's most recent semi-annual report; and (iii) the fund's proxy statement states that proxies will not be voted for the election of directors unless the fund receives a certificate that there has been no material adverse change in the financial conditions of the fund on the date of the vote or the fund mails an annual report to shareholders and gives them an opportunity to revoke their proxies. See also Dreyfus Connecticut Municipal Money Market Fund and Dreyfus Michigan Municipal Money Market Fund (pub. avail. Dec. 5, 1990). To clarify the annual report delivery requirements for funds, the Commission is proposing to set forth the conditions under which a fund's annual report previously transmitted to shareholders would satisfy the requirements of rule 14aÄ3. As proposed, any annual report delivered to shareholders two months before the date of the proxy statement would satisfy the delivery requirements of rule 14aÄ3(b). In the case of an annual report delivered more than two months before the date of a proxy statement, a proposed note to rule 14aÄ3(b) would state that an annual report previously transmitted to shareholders would satisfy the annual report delivery requirement under certain conditions. The proposed conditions include: (i) The fund mails the proxy statement at least 30 days prior to the meeting; (ii) the proxy statement includes a prominent statement that the most recent annual report and any subsequent semi-annual report will be delivered to shareholders, upon written or oral request, without charge; and (iii) if requested by a shareholder, the annual report and, if available, the semi-annual report is transmitted within two business days of the request.80 The Commission requests comment on whether the two-month period for the previous delivery of an annual report without a legend is sufficient or should be shorter or longer. In addition, the Commission requests comment on other methods of satisfying the rule 14aÄ3(b) annual report requirement that could ensure appropriate disclosure to shareholders while avoiding unnecessary expense. Commenters are specifically requested to address whether, and under what conditions, it may be appropriate to eliminate the proxy annual report requirement for funds in light of the reports required to be transmitted to shareholders semi-annually under rule 30dÄ1. ®8¯ 0The same amendments are proposed for rule 14cÄ3 (17 CFR 240.14cÄ3), which requires an annual report to accompany an information statement concerning the election of directors. The Commission also proposes to amend Rule 14aÄ3(e)(2) (17 CFR 240.14aÄ3(e)(2)), which relieves registrants of the obligation to deliver proxy and other soliciting materials to shareholders whose dividend payments are returned as undeliverable. Because many fund shareholders choose to have their dividends reinvested in additional shares and, thus, receive only dividend reinvestment confirmations, the Commission is proposing to amend this provision to refer also to undeliverable dividend reinvestment confirmations.81 ®8¯ 1The Commission also is proposing amendments to clarify those provisions of rule 14aÄ3 that are applicable to funds. Currently, subparagraph (12) of rule 14aÄ3(b) relieves investment companies from the obligations of certain of the other provisions that appear earlier in the rule. The amendments would clarify the provisions applicable to funds by providing for the exceptions in the introductory language of paragraph (b). Item 3 of Schedule 14A requires a description of appraisal or similar rights under state law applicable to any matter being acted upon (i.e., mergers and other fundamental corporate transactions).82 These state laws are superseded by the 1940 Act,83 which requires open-end funds to redeem their securities at net asset value.84 Therefore, the Commission proposes to amend item 3 to make it expressly inapplicable to open-end funds.85 Closed-end funds (including closed-end funds that make periodic repurchases of their shares under rule 22cÄ3 of the 1940 Act (17 CFR 270.22cÄ3), which do not issue redeemable securities, would continue to be subject to item 3. ®8¯ 2Most state laws allow minority shareholders that vote against such transactions to demand a judicial appraisal of the fair value of their shares. E.g., 8 Del. Code  262; N.Y. Bus. Corp. Law  623. ®8¯ 3Investment Company Act Rel. No. 8752 (Apr. 10, 1975) [40 FR 17986 (Apr. 24, 1975)]. ®8¯ 4Mutual funds issue redeemable securities. Under the provisions of the 1940 Act, shareholders of mutual funds are entitled to receive the net asset value of their securities within seven days of demand. See section 5(a)(1) (15 U.S.C. 80aÄ5(a)(1) (defining mutual funds as those funds that issue redeemable securities), section 2(a)(32) (15 U.S.C. 80aÄ2(a)(32)) (defining redeemable securities as securities entitling the holder to receive, upon demand, approximately the proportionate value of the issuer's current net assets or the cash equivalent thereof), section 22(e) (15 U.S.C. 80aÄ22(e)) (providing that, with certain limited exceptions, no fund shall suspend the right of redemption for more than seven days after the tender of securities for redemption), and rule 22cÄ1 (17 CFR 270.22cÄ1) (providing that redeemable securities must be redeemed at a price based on the current net asset value computed immediately after tender of the security for redemption). ®8¯ 5Proposed instruction 2 to item 3 of Schedule 14A. I. Form NÄ14 Form NÄ14 is used by funds to register securities issued in connection with investment company merger transactions.86 In addition, Form NÄ14 may serve as the proxy or information statement for such transactions. The Commission is proposing to amend Form NÄ14 to require disclosure in a table of the fees of the acquiring and acquired fund and pro forma fees for the combined entity.87 This information will enable shareholders to assess how the proposed transaction would affect fees. The proposed amendment to Form NÄ14 is comparable to the fee table proposed to be included in proxy statements when a matter submitted to a shareholder vote would result in an increase in fees.88 ®8¯ 6See Investment Company Act Rel. No. 14796 (Nov. 14, 1985) (50 FR 48379 (Nov. 25, 1985)). ®8¯ 7Proposed paragraph (a) of item 3 of Form NÄ14. ®8¯ 8See section II.B, supra. III. General Request for Comments Any interested persons wishing to submit written comments on the proposed rule changes that are the subject of this Release, to suggest additional changes (including changes to provisions of the rules that the Commission is not proposing to amend), or to submit comments on other matters that might affect the proposed rules and amendments, are requested to do so. Commenters suggesting alternative approaches are encouraged to submit proposed rule text. IV. Cost/Benefit of the Proposals To assist in the evaluation of the costs and benefits that may result from the proposed amendments to the financial statement requirements for funds, the Commission requests that commenters provide views and data relating to any costs and benefits associated with these proposals. The proposed amendments to the proxy rules applicable to funds are not expected to impose additional burdens on funds because the amendments eliminate disclosure that may not be relevant to shareholders, while adding other requirements that enhance the information provided to shareholders. In addition, the proposed amendments would provide more useful and comprehensive information to fund shareholders. V. Summary of Initial Regulatory Flexibility Analysis The Commission has prepared an initial regulatory flexibility analysis in accordance with 5 U.S.C. 603 regarding the proposed amendments. The analysis notes that the rule proposals contained in this release are intended to provide more current, concise, and comprehensible information in fund proxy statements while simplifying the preparation of proxy statements. Other aggregate cost-benefit information reflected in the "Cost/Benefit Analysis'' section of this release also is reflected in this analysis. A copy of the Initial Regulatory Flexibility Analysis may be obtained by contacting Kathleen K. Clarke, Office of Disclosure and Adviser Regulation, 450 5th Street NW., Washington, DC 20549. VI. Statutory Authority The Commission is proposing to amend the proxy rules under 1934 Act sections 14 (15 U.S.C. 78n) and 23(a) (15 U.S.C. 78(w)) and 1940 Act sections 20(a) and 38(a) (15 U.S.C. 39(a)). The authority citations for the amendments to the rules precede the text of the amendments. VII. Text of Proposed Rule Amendments List of Subjects in 17 CFR Parts 200, 229, 239, 240, 270 and 274 Authority Delegation (Government agencies), Investment companies, Reporting and recordkeeping requirements, Securities. For the reasons set out in the preamble, the Commission is proposing to amend title 17, chapter II of the Code of Federal Regulations as follows: PART 200 ORGANIZATION; CONDUCT AND ETHICS; AND INFORMATION AND REQUESTS 1. The authority citation for part 200 is amended by adding the following citation: Authority: 15 U.S.C. 77s, 78dÄ1, 78dÄ2, 78w, 78ll(d), 79t, 77sss, 80aÄ37, 80bÄ11, unless otherwise noted. * * * * * Section 200.30Ä5 also is issued under 15 U.S.C. 77f, 77g, 77h, 77j, 78c(b), 78l, 78m, 78n, 78o(d), 80aÄ8, 80aÄ20, 80aÄ24, 80aÄ29, 80bÄ3, 80bÄ4.  200.30Ä5 [Amended] 2. The authority citation following  200.30Ä5 is removed. 3. By amending  200.30Ä5 to remove and to reserve paragraph (a)(5). PART 229 STANDARD INSTRUCTIONS FOR FILING FORMS UNDER SECURITIES ACT OF 1933, SECURITIES EXCHANGE ACT OF 1934, AND ENERGY POLICY AND CONSERVATION ACT OF 1975 REGULATION SÄK 4. The authority citation for part 229 continues to read, in part, as follows: Authority: 15 U.S.C. 77e, 77f, 77g, 77h, 77j, 77k, 77s, 77aa(25), 77aa(26), 77ddd, 77eee, 77ggg, 77hhh, 77iii, 77jjj, 77nnn, 77sss, 78c, 78i, 78j, 78l, 78m, 78n, 78o, 78w, 78ll(d), 79e, 79n, 79t, 80aÄ8, 80aÄ29, 80aÄ30, 80aÄ37, 80bÄ11, unless otherwise noted. * * * * *  229.401 [Amended] 5. The authority citation following  229.401 is removed. 6. By amending  229.401 to add an instruction following paragraph (e) to read as follows:  229.401 (Item 401) Directors, executive officers, promoters and control persons. * * * * * (e) * * * Instruction to Paragraph (e) of Item 401 For the purposes of paragraph (e)(2), where the other directorships of each director or person nominated or chosen to become a director include directorships of two or more registered investment companies that are part of a "fund complex'' as that term is defined in Item 22(a)(1)(v) of Schedule 14A under the Exchange Act ( 240.14aÄ101 of this chapter), the registrant may, rather than listing each such investment company, identify the fund complex and provide the number of investment company directorships held by the director or nominee in such fund complex. PART 239 FORMS PRESCRIBED UNDER THE SECURITIES ACT OF 1933 7. The authority citation for part 239 continues to read, in part, as follows: Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 77sss, 78c, 78l, 78m, 78n, 78o(d), 78w(a), 78ll(d), 79e, 79f, 79g, 79j, 79l, 79m, 79n, 79q, 79t, 80aÄ8, 80aÄ29, 80aÄ30 and 80aÄ37, unless otherwise noted. * * * * * 8. By amending Item 3 of Form NÄ14 ( 239.23) to revise the title, to redesignate paragraphs (a) and (b) as paragraphs (b) and (c), to add paragraph (a), and to revise the third sentence of newly redesignated paragraph (b) to read as follows: Note: The text of Form NÄ14 does not and the amendments will not appear in the Code of Federal Regulations. Form NÄ14 Item 3. Fee Table, Synopsis Information, and Risk Factors (a) Include a table showing the current fees for the registrant and the company being acquired and pro forma fees, if different, for the registrant after giving effect to the transaction using the format prescribed in the appropriate registration statement form under the 1940 Act (for open-end management investment companies, Item 2(a)(i) of Form NÄ1A; for closed-end management investment companies, Item 3.1 of Form NÄ2; and for separate accounts that offer variable annuity contracts, Item 3(a) of Form NÄ3). (b) * * * As to the registrant and company being acquired, compare: (1) investment objectives and policies; (2) distribution and purchase procedures and exchange rights; (3) redemption procedures; and (4) any other significant considerations.* * * * * * * * PART 240 GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 1934 9. The authority citation for part 240 continues to read, in part, as follows: Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78d, 78i, 78j, 78l, 78m, 78n, 78o, 78p, 78s, 78w, 78x, 78ll(d), 79q, 79t, 80aÄ20, 80aÄ23, 80aÄ29, 80aÄ37, 80bÄ3, 80bÄ4 and 80bÄ11, unless otherwise noted. * * * * * 10. By amending  240.14aÄ3 to revise the introductory text of paragraph (b), to designate the note after the introductory text of paragraph (b) as Note 2: and revise the title, to add Note 1: after the introductory text of paragraph (b), to remove and reserve paragraph (b)(12), and to revise paragraph (e)(2) to read as follows:  240.14aÄ3 Information to be furnished to security holders. * * * * * (b) If the solicitation is made on behalf of the registrant and relates to an annual (or special meeting in lieu of annual) meeting of security holders, or written consent in lieu of such meeting, at which directors are to be elected, each proxy statement furnished pursuant to paragraph (a) of this section shall be accompanied or preceded by an annual report to security holders as follows (except that paragraphs (b)(5) through (b)(11) of this section shall not apply to investment companies registered under the Investment Company Act of 1940): Note 1: Registered Investment Companies. An annual report transmitted to shareholders by a registered investment company pursuant to Rule 30dÄ1 of the Investment Company Act of 1940 ( 270.30dÄ1 of this chapter) no more than 60 days before the date of the proxy statement will satisfy the requirement that an annual report accompany or precede the proxy statement. Where a proxy statement is transmitted more than 60 days after transmission of the annual report, the annual report delivery requirement of paragraph (b) will be satisfied if the investment company: (1) Mails the proxy statement to shareholders no later than 30 days prior to the shareholder vote; (2) states prominently in the proxy statement that it will furnish, without charge, a copy of the annual report and the most recent semi-annual report succeeding the annual report, if any, upon request, providing the name, address, and toll-free telephone number of the person to whom such request shall be directed (or, if no toll-free telephone number is provided, a self-addressed postage paid card for requesting the annual report); and (3) provides a copy of the annual report and the most recent semi-annual report succeeding the annual report, if any, to the requesting shareholder by first class mail, or other means designed to assure prompt delivery, within two business days of the request. Note 2: Small Business Issuers. * * *. * * * * * (12) [Reserved] * * * * * (e) * * * (1) * * * (2) Unless state law requires otherwise, a registrant is not required to send an annual report or proxy statement to a security holder if: (i) an annual report and a proxy statement for two consecutive annual meetings; or (ii) all, and at least two, payments (if sent by first class mail) of dividends or interest on securities, or dividend reinvestment confirmations, during a twelve month period, have been mailed to such security holder's address and have been returned as undeliverable. If any such security holder delivers or causes to be delivered to the registrant written notice setting forth his then current address for security holder communications purposes, the registrant's obligation to deliver an annual report or a proxy statement under this section is reinstated. 11. By amending  240.14aÄ6 to revise the introductory text of paragraph (i) to read as follows:  240.14aÄ6 Filing requirements. * * * * * (i) Fees. At the time of filing the proxy solicitation material, the persons upon whose behalf the solicitation is made, other than companies registered under the Investment Company Act of 1940, which shall refer to Item 22(a)(2) of Schedule 14A, shall pay to the Commission the following applicable fee: * * * * * 12. By amending  240.14aÄ101 to add an "s'' at the end of the word "Instruction'' in Item 3, to designate the instruction to Item 3 as 1. and to add an instruction 2., to revise paragraphs (c) and (d) of Item 7, to revise the last sentence of Item 8 prior to the instruction, to add an instruction after the introductory text of paragraph (b)(1)(ii) and at the end of item 10, and to revise Item 20 to read as follows:  240.14aÄ101 Schedule 14A. Information required in proxy statement. * * * * * Item 3. Dissenters' right of appraisal. * * * * * Instructions. 1. * * * 2. Open-end investment companies registered under the Investment Company Act of 1940 are not required to respond to this item. * * * * * Item 7. Directors and executive officers. * * * * * (c) Furnish the information required by Item 404(b) of Regulation SÄK ( 229.404 of this chapter). (d) In lieu of paragraphs (a) through (c) of this Item, investment companies registered under the Investment Company Act of 1940 shall furnish the information required by item 22(b) of this Schedule 14A. * * * * * Item 8. Compensation of directors and executive officers. * * * In the case of investment companies registered under the Investment Company Act of 1940 and registrants that have elected to be regulated as business development companies, furnish the information required by Item 22(b)(6) of this Schedule. * * * * * Item 10. Compensation Plans. * * * Instruction: In the case of investment companies registered under the Investment Company Act of 1940, furnish the information for Compensated Persons as defined in Item 22(b)(6) of the schedule in lieu of the persons specified in paragraph (a)(3) of Item 402 of Regulation SÄK ( 229.402(a)(3 of this chapter). * * * * * (b) * * * Instruction. In the case of investment companies registered under the Investment Company Act of 1940, refer to instruction 4 in Item 22(b)(6)(ii) of this schedule in lieu of paragraph (f)(1) of Item 402 of Regulation SÄK. * * * * * Item 20. Other Proposed Action. If action is to be taken on any matter not specifically referred to in this Schedule 14A, describe briefly the substance of each such matter in substantially the same degree of detail as is required by Items 5 to 19, inclusive, above, and, with respect to investment companies registered under the Investment Company Act of 1940, Item 22, below. * * * * * 13. By amending  240.14aÄ101 to add Item 22 to read as follows:  240.14AÄ101 Schedule 14A. Information required in proxy statement. * * * * * Item 22. Information required in investment company proxy statement. (a) General. (1) Definitions. Unless the context otherwise requires, terms used in this Item that are defined in  240.14aÄ1 (with respect to proxy soliciting material), in  240.14cÄ1 (with respect to information statements), and in the Investment Company Act of 1940 shall have the same meanings provided therein and the following terms shall also apply: (i) Administrator. The term "Administrator'' shall mean any person or persons who provide significant administrative or business management services to the Fund and shall include any person that has been or would be identified in response to Item 5(c) of Form NÄ1A ( 274.11A of this chapter), Item 9.1.d. of Form NÄ2 ( 274.11aÄ1 of this chapter), or Item 6(c) of Form NÄ3 ( 274.11b of this chapter). (ii) Affiliated Broker. The term "Affiliated Broker'' shall mean any broker: (A) that is an affiliated person of the Fund; (B) that is an affiliated person of such person; or (C) an affiliated person of which is an affiliated person of the Fund, its investment adviser, principal underwriter, or Administrator. (iii) Distribution Plan. The term "Distribution Plan'' shall mean a plan adopted pursuant to Rule 12bÄ1 under the Investment Company Act of 1940 ( 270.12bÄ1 of this chapter). (iv) Distributor. The term "Distributor'' shall mean any person or persons who either wholly or in part assist in the distribution of the Fund's shares, including, without limitation, a Fund's principal underwriter, Distributor, investment adviser, manager, sponsor, Administrator, and other entities performing similar functions. (v) Fund. The term "Fund'' shall mean a Registrant or, where the Registrant is a series company, a separate portfolio of the Registrant. (vi) Fund Complex. The term "Fund Complex'' shall mean two or more Funds provided that: (A) Such funds have a common investment adviser or, with respect to an open-end management investment company, principal underwriter; or (B) The investment adviser or, with respect to an open-end management investment company, principal underwriter of one of the Funds is an affiliated person as defined in section 2(a)(3) of the Investment Company Act of 1940 of the investment adviser or principal underwriter of each of the other Funds. (vii) Parent. The term "Parent'' shall mean the affiliated person of a specified person who controls the specified person directly or indirectly through one or more intermediaries. (viii) Registrant. The term "Registrant'' shall mean an investment company registered under the Investment Company Act of 1940. (ix) Subsidiary. The term "Subsidiary'' shall mean an affiliated person of a specified person who is controlled by the specified person, directly or indirectly, through one or more intermediaries. (2) Filing Fees. In lieu of the fees specified in  240.14a-6, at the time of filing the preliminary proxy solicitation material, or, if no preliminary solicitation material is filed, at the time of filing the definitive proxy solicitation material, the person upon whose behalf the solicitation is made shall pay to the Commission a fee of $125, no part of which shall be refunded. (3) General Disclosure. Furnish the following information in the proxy statement of a Fund or Funds: (i) State the name and address of the Fund's investment adviser, principal underwriter, and Administrator. (ii) When a Fund proxy statement solicits a vote on proposals affecting more than one Fund, present a summary of the proposals in tabular form on one of the first three pages of the proxy statement and indicate which Fund shareholders are solicited with respect to each proposal. (iii) If the action to be taken would establish a new fee or expense or increase any existing fee or expense to be paid by the Fund or its shareholders, provide a table showing the current and pro forma fees (with the required examples) using the format prescribed in the appropriate registration statement form under the Investment Company Act of 1940 (for open-end management investment companies, Item 2(a)(i) of Form NÄ1A ( 239.15A); for closed-end management investment companies, Item 3.1 of Form NÄ2 ( 239.14); and for separate accounts that offer variable annuity contracts, Item 3(a) of Form NÄ3 ( 239.17a)). Instructions. 1. Where approval is sought only for a change in asset breakpoints for a pre-existing fee that would not have increased the fee for the previous year (or have the effect of increasing fees or expenses, but for any other reason would not be reflected in a pro forma fee table), describe the likely effect of the change in lieu of providing pro forma fee information. 2. An action would indirectly establish or increase a fee or expense where, for example, the approval of a new investment advisory contract would result in higher custodial or transfer agency fees. 3. The tables should be prepared in a manner designed to facilitate understanding of the impact of any change in fees or expenses. 4. A Fund that offers its shares exclusively to one or more separate accounts and thus is not required to include a fee table in its prospectus (see Item 2(a)(ii) of Form NÄ1A ( 239.15A)) should nonetheless prepare a table showing current and pro forma expenses and disclose that the table does not reflect separate account expenses, including sales load. (iv) State whether shareholders will be informed of the voting results for matters submitted to a vote in the proxy statements, and, if so, by what means (e.g., monthly or quarterly report, semi-annual report to shareholders pursuant to Rule 30d-1 ( 270.30d-1 of this chapter)). (4) If action is to be taken with respect to the election of directors or the approval of an advisory contract, describe any purchases or sales of securities of the investment adviser or its Parents, or Subsidiaries of either, since the beginning of the most recently completed fiscal year by any director or any nominee for election as a director of the Fund. Instructions. 1. Identify the parties, state the consideration, the terms of payment and describe any arrangement or understanding with respect to the composition of the board of directors of the Fund or of the investment adviser, or with respect to the selection of appointment of any person to any office with either such company. 2. Transactions involving securities in an amount not exceeding one percent of the outstanding securities of any class of the investment adviser or any of its Parents may be omitted. (b) Election of Directors. If action is to be taken with respect to the election of directors of the Fund and the solicitation is made by or on behalf of the Fund or by or on behalf of an investment adviser, furnish the following information in the proxy statement in addition to the information (and in the format) required by paragraphs (e) through (g) of Item 7 of Schedule 14A. Instructions. 1. Furnish information with respect to a prospective investment adviser to the extent applicable. 2. If the solicitation is made other than by or on behalf of the Fund or by or on behalf of an investment adviser, provide only information as to nominees of the person making the solicitation. (1) Identify each director or nominee for election as director who is, or was, an officer, employee, director, general partner, or shareholder of the investment adviser. As to any director or nominee who is not a director or general partner of the investment adviser and owns any securities or has, or had, any other material direct or indirect interest in the investment adviser or any person controlling, controlled by, or under common control with the investment adviser, describe the nature of such interest. (2) Identify each director or nominee who has or had any material direct or indirect interest in the Fund's principal underwriter or Administrator and describe the nature of such interest. (3) Describe briefly, and where practicable, state the approximate amount of any material interest, direct or indirect, of any director or nominee for election as a director of the Fund in any material transactions since the beginning of the most recently completed fiscal year, or in any proposed material transactions, to which the investment adviser, the principal underwriter, the Administrator, or the Distributor, any Parent or Subsidiary of such entities (other than another Fund), or any Subsidiary of the Parent of such entities was or is to be a party. Instructions. 1. Include the name of each person whose interest in any transaction is described and the nature of the relationship by reason of which such interest is required to be described. Where it is not practicable to state the approximate amount of the interest, indicate the approximate amount involved in the transaction. 2. As to any transaction involving the purchase or sale of assets by or to the investment adviser, the Administrator or the Distributor, state the cost of the assets to the purchaser and the cost thereof to the seller if acquired by the seller within two years prior to the transaction. 3. If the interest of any person arises from the position of the person as a partner in a partnership, the proportionate interest of such person in transactions to which the partnership is a party need not be set forth but state the amount involved in the transaction with the partnership. 4. No information need be given in response to this paragraph with respect to any transaction that is not related to the business or operations of the Fund and to which neither the Fund nor any of its Parents or Subsidiaries is a party. (4) Provide in tabular form to the extent practicable the information required by Items 401, 404(a) and (c), and 405 of Regulation SÄK ( 229.401, 229.404, and 229.405 of this chapter). Instructions. 1. Indicate by an asterisk any nominee or director who is or would be an "interested person'' within the meaning of section 2(a)(19) of the Investment Company Act of 1940 and describe the relationships, events, or transactions by reason of which such person is deemed an "interested person.'' 2. Separate accounts registered as management investment companies need not provide any information concerning the officers of the sponsoring insurance company who are not directly or indirectly engaged in activities related to the separate account in response to Item 401(b) ( 229.401(b)) or, with regard to executive officers or persons nominated or chosen to become an executive officer, Item 401(e) ( 229.401(e)) of Regulation SÄK. (5) Describe briefly any material pending legal proceedings, other than ordinary routine litigation incidental to the Fund's business, to which any director or nominee for director or affiliated person of such director or nominee is a party adverse to the Fund or any of its affiliated persons or has a material interest adverse to the Fund or any of its affiliated persons. Include the name of the court where the case is pending, the date instituted, the principal parties, a description of the factual basis alleged to underlie the proceeding, and the relief sought. (6) For all directors, and for the three highest-paid executive officers that have aggregate compensation from the Fund in the last fiscal year in excess of $60,000 ("Compensated Persons''): (i) Furnish the information required by the following table for the last fiscal year: c5,L1,i1,xl50,xl50,xl50,xl50,xl50 Compensation Table [col head 1] (1) Name of person, position [col head 1] (2) Aggregate compensation from fund [col head 1] (3) Pension or retirement benefits accrued as part of fund expenses [col head 1] (4) Estimated annual benefits upon retirement [col head 1] (5) Total compensation from fund and fund complex Instructions. 1. For column (1), indicate, if necessary, the capacity in which the remuneration is received. 2. If the Fund has not completed its first full year since its organization, furnish the information for the current fiscal year, estimating future payments that would be made pursuant to an existing agreement or understanding. 3. Include in columns (3) and (4) all pension or retirement benefits proposed to be paid under any existing plan in the event of retirement at normal retirement date, directly or indirectly, by the Fund or any of its Subsidiaries, or by other companies in the Fund Complex. Omit column (4) where retirement benefits are not determinable. 4. For any defined benefit or actuarial plan under which benefits are determined primarily by final compensation (or average final compensation) and years of service, provide the information required in column (4) in a separate table showing estimated annual benefits payable upon retirement (including amounts attributable to any defined benefit supplementary or excess pension award plans) in specified compensation and years of service classifications. Also provide the estimated credited years of service for each Compensated Person. 5. Aggregate in column (5) all compensation paid to a director for service on the board and other boards of investment companies in a Fund Complex specifying the number of such other investment companies. (ii) Describe briefly the material provisions of any pension, retirement, or other plan or arrangement pursuant to which Compensated Persons are or may be compensated for any services provided. Specifically include the criteria used to determine amounts payable under the plan, the length of service or vesting period required by the plan, the retirement age or other event which give rise to payments under the plan, and whether the payment of benefits is secured or funded by the Fund. (iii) With respect to each Compensated Person, business development companies shall include the information required by Items 402(b)(2)(iv) and 402(c) of Regulation SÄK ( 229.402(b)(2)(iv) and 229.402(c) of this chapter). (c) Approval of Investment Advisory Contract. If action is to be taken with respect to an investment advisory contract, include the following information in the proxy statement. Instruction. Furnish information with respect to a prospective investment adviser to the extent applicable (including the name and address of the prospective investment adviser). (1) With respect to the existing investment advisory contract: (i) state the date of the contract and the date on which it was last submitted to a vote of security holders of the Fund, including the purpose of such submission; (ii) briefly describe the terms of the contract, including the rate of compensation of the investment adviser; (iii) state the aggregate amount of the investment adviser's fee and the amount and purpose of any other material payments by the Fund to the investment adviser, or any affiliated person of the investment adviser, during the last fiscal year of the Fund; (iv) if any person is acting as an investment adviser of the Fund other than pursuant to a written contract that has been approved by the security holders of the company, identify the person and describe the nature of the services and arrangements; (v) describe any action taken with respect to the investment advisory contract since the beginning of the Fund's last fiscal year by the board of directors of the Fund (unless described in response to paragraph (c)(1)(vi) of this Item 22); and (vi) if an investment advisory contract was terminated or not renewed for any reason, state the date of such termination or non-renewal, identify the parties involved, and describe the circumstances of such termination or non-renewal. (2) State the name, address and principal occupation of the principal executive officer and each director or general partner of the investment adviser. Instruction. If the investment adviser is a partnership with more than ten general partners, name the general partners with the five largest economic interests in the partnership, and, if different, those general partners comprising the management or executive committee of the partnership or exercising similar authority. (3) State the names and addresses of all Parents of the investment adviser and show the basis of control of the investment adviser and each Parent by its immediate Parent. Instructions. 1. If any person named is a corporation, include the percentage of its voting securities owned by its immediate Parent. 2. If any person named is a partnership, name the general partners having the three largest partnership interests (computed by whatever method is appropriate in the particular case). (4) If the investment adviser is a corporation and if, to the knowledge of the persons making the solicitation or the persons on whose behalf the solicitation is made, any person not named in answer to paragraph (c)(3) of this Item 22 owns, of record or beneficially, ten percent or more of the outstanding voting securities of the investment adviser, indicate that fact and state the name and address of each such person. (5) Name each officer or director of the Fund who is an officer, employee, director, general partner or shareholder of the investment adviser. As to any officer or director who is not a director or general partner of the investment adviser and who owns securities or has any other material direct or indirect interest in the investment adviser or any other person controlling, controlled by or under common control with the investment adviser, describe the nature of such interest. (6) Describe briefly, and where practicable, state the approximate amount of any material interest, direct or indirect, of any director of the Fund in any material transactions since the beginning of the most recently completed fiscal year, or in any material proposed transactions, to which the investment adviser of the Fund, any Parent or Subsidiary of the investment adviser (other than another Fund), or any Subsidiary of the Parent of such entities was or is to be a party. Instructions. 1. Include the name of each person whose interest in any transaction is described and the nature of the relationship by reason of which such interest is required to be described. Where it is not practicable to state the approximate amount of the interest, indicate the approximate amount involved in the transaction. 2. As to any transaction involving the purchase or sale of assets by or to the investment adviser, state the cost of the assets to the purchaser and the cost thereof to the seller if acquired by the seller within two years prior to the transaction. 3. If the interest of any person arises from the position of the person as a partner in a partnership, the proportionate interest of such person in transactions to which the partnership is a party need not be set forth but state the amount involved in the transaction with the partnership. 4. No information need be given in response to this paragraph (c)(6) of Item 22 with respect to any transaction that is not related to the business or operations of the Fund and to which neither the Fund nor any of its Parents or Subsidiaries is a party. (7) Disclose any financial condition of the investment adviser that is reasonably likely to impair the financial ability of the adviser to fulfil its commitment to the fund under the proposed investment advisory contract. (8) Describe the nature of the action to be taken on the investment advisory contract and the reasons therefor, the terms of the contract to be acted upon, and, if the action is an amendment to, or a replacement of, an investment advisory contract, the material differences between the current and proposed contract. (9) If a change in the investment advisory fee is sought, state: (i) The aggregate amount of the investment adviser's fee during the last year; (ii) The amount that the adviser would have received had the proposed fee been in effect; and (iii) The percentage amount of the change in the proposed fee. (10) If the investment adviser acts as such with respect to any other Fund having a similar investment objective, identify and state the size of such other Fund and the rate of the investment adviser's compensation. Also indicate for any Fund identified whether the investment adviser has waived, reduced, or otherwise agreed to reduce its compensation under any applicable contract. Instruction. Furnish the information in response to this paragraph (c)(10) of Item 22 in tabular form. (11) Discuss in reasonable detail the material factors and the conclusions with respect thereto which form the basis for the recommendation of the board of directors that the shareholders approve an investment advisory contract. Such factors may include, but are not limited to: (i) the qualifications of the investment adviser to provide investment advisory services, including the credentials and investment experience of its officers and employees; (ii) the range of services provided by the investment adviser; (iii) the qualifications of the investment adviser to provide an appropriate range of management and administrative services; (iv) the performance record of the investment adviser; (v) the financial condition of the investment adviser; (vi) the terms of the agreement; and (vii) the appropriateness of the advisory fee, which may include, among other things, the benefits derived by the investment adviser from the relationship with the Fund such as soft dollar arrangements by which brokers provide services to the Fund or its investment adviser that the investment adviser would otherwise have to pay for. Instruction. Conclusory statements or a list of factors will not be considered sufficient disclosure. The discussion should relate the factors to the specific circumstances of the fund and the investment advisory contract for which approval is sought. (12) Describe any arrangement or understanding made in connection with the proposed investment advisory contract with respect to the composition of the board of directors of the Fund or the investment adviser or with respect to the selection or appointment of any person to any office with either such company. (13) For the most recently completed fiscal year, state: (i) the aggregate amount of commissions paid to any Affiliated Broker; and (ii) the percentage of the Fund's aggregate brokerage commissions paid to any such Affiliated Broker. Instruction. Identify each Affiliated Broker and the relationships that cause the broker to be an Affiliated Broker. (14) Disclose the amount of any fees received by the investment adviser, its affiliated persons or any affiliated person of such person during the most recent fiscal year for services provided to the Fund (other than under the investment advisory contract or for brokerage commissions). State whether these services will continue to be provided after the investment advisory contract is approved. (d) Approval of Distribution Plan. If action is to be taken with respect to a Distribution Plan, include the following information in the proxy statement. Instructions. 1. Furnish information with respect to a prospective Distributor to the extent applicable (including the name and address of the prospective Distributor). 2. Where the Fund has multiple classes of securities with different distribution arrangements, furnish information on a class basis. Discuss differences among classes including the distribution fee paid by each class. (1) Describe the nature of the action to be taken on the Distribution Plan and the reason therefor, the terms of the Distribution Plan to be acted upon, and, if the action is an amendment to, or a replacement of, a Distribution Plan, the material differences between the current and proposed Distribution Plan. (2) If the Fund has a Distribution Plan in effect: (i) provide the date that the Distribution Plan was adopted and the date of the last amendment, if any; (ii) Disclose the persons to whom payments may be made under the Distribution Plan, the rate of the distribution fee and the purposes for which such fee may be used; (iii) Disclose the amount of distribution fees paid by the Fund pursuant to the plan during its most recent fiscal year, both in the aggregate and as a percentage of the Fund's average net assets during the period; (iv) Disclose the name of, and the amount of any payments made by the Fund during its most recent fiscal year to, any person who is an affiliated person of the Fund, its investment adviser, principal underwriter, or Administrator, an affiliated person of such person, or a person that during the most recent fiscal year received 10% or more of the aggregate amount paid under the Distribution Plan by the Fund; (v) describe any action taken with respect to the Distribution Plan since the beginning of the Fund's most recent fiscal year by the board of directors of the Fund; and (vi) if a Distribution Plan was or is to be terminated or not renewed for any reason, state the date or prospective date of such termination or non-renewal, identify the parties involved, describe the circumstances of such termination or non-renewal, and identify any director of the Fund who, at the time of the action described, owned any securities of, or had any other material, direct or indirect, interest in the Distributor, or any affiliated person of the Distributor (other than another Fund), and state the nature of such interest. (3) Describe briefly, and where practicable, state the approximate amount of any material interest, direct or indirect, of any director or nominee for election as a director of the Fund in any material transactions since the beginning of the most recently completed fiscal year, or in any material proposed transactions, to which the Distributor of the Fund, any Parent or Subsidiary of the Distributor (other than another Fund), or any Subsidiary of the Parent of the Distributor was or is to be a party. Instructions. 1. Include the name of each person whose interest in any transaction is described and the nature of the relationship by reason of which such interest is required to be described. Where it is not practicable to state the approximate amount of the interest, indicate the approximate amount involved in the transaction. 2. As to any transaction involving the purchase or sale of assets by or to the Distributor, state the cost of the assets to the purchaser and the cost thereof to the seller if acquired by the seller within two years prior to the transaction. 3. If the interest of any person arises from the position of the person as a partner in a partnership, the proportionate interest of such person in transactions to which the partnership is a party need not be set forth but state the amount involved in the transaction with the partnership. 4. No information need be given in response to this paragraph (d)(3) of Item 22 with respect to any transaction that is not related to the business or operations of the Fund and to which neither the Fund nor any of its Parents or Subsidiaries is a party. (4) Discuss in reasonable detail the material factors and the conclusions with respect thereto which form the basis for the conclusion of the board of directors that there is a reasonable likelihood that the proposed Distribution Plan (or amendment thereto) will benefit the Fund and its shareholders. Instruction. Conclusory statements or a list of factors will not be considered sufficient disclosure. 14. By amending  240.14cÄ3 to add a note after paragraph (a) to read as follows:  240.14cÄ3 Annual report to be furnished security holders. (a) * * * Note: Registered Investment Companies. An annual report transmitted to shareholders by a registered investment company pursuant to Rule 30dÄ1 of the Investment Company Act of 1940 ( 270.30dÄ1 of this chapter) no more than 60 days before the date of the information statement will satisfy the requirement that an annual report accompany or precede the information statement. Where an information statement is transmitted more than 60 days after transmission of the annual report, the annual report delivery requirement of paragraph (b) will be satisfied if the investment company: (1) Mails the information statement to shareholders no later than 30 days prior to the record date of the meeting of security holders or the record date of written consents in lieu of a meeting; (2) states prominently in the information statement that it will furnish, without charge, a copy of the annual report and the most recent semi-annual report succeeding the annual report, if any, upon request, providing the name, address, and toll-free telephone number of the person to whom such request shall be directed (or, if no toll-free telephone number is provided, a self-addressed postage paid card for requesting the annual report); and (3) provides a copy of the annual report and the most recent semi-annual report succeeding the annual report, if any, to the requesting shareholder by first class mail, or other means designed to assure prompt delivery, within two business days of the request. PART 270 GENERAL RULES AND REGULATIONS, INVESTMENT COMPANY ACT OF 1940 15. The authority citation for part 270 continues to read, in part, as follows: Authority: 15 U.S.C. 80aÄ1 et seq., 80aÄ37, 80aÄ39 unless otherwise noted; * * * * * 16. By amending  270.20aÄ1 to revise the first sentence of paragraph (a) and to remove paragraph (c) to read as follows:  270.20aÄ1 Solicitation of proxies, consents and authorizations. (a) No person shall solicit or permit the use of his or her name to solicit any proxy, consent, or authorization with respect to any security issued by a registered Fund, except upon compliance with Regulation 14A ( 240.14aÄ1 of this chapter), Schedule 14A ( 240.14aÄ101 of this chapter), and all other rules and regulations adopted pursuant to Section 14(a) of the Securities Exchange Act of 1934 that would be applicable to such solicitation if it were made in respect of a security registered pursuant to Section 12 of the Securities Exchange Act of 1934. * * * * * * * * 17. By removing and reserving  270.20aÄ2 and  270.20aÄ3. PART 239 FORMS PRESCRIBED UNDER THE SECURITIES ACT OF 1933 PART 274 FORMS PRESCRIBED UNDER THE INVESTMENT COMPANY ACT OF 1940 18. The authority citations following  239.14 and 239.15A are removed. 19. The authority citation for part 274 is revised to read as follows: Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 78c(b), 78l, 78m, 78n, 78o(d), 80aÄ8, 80aÄ24, and 80aÄ29, unless otherwise noted. 20. The authority citations following  274.11, 274.11A, 274.11aÄ1, 274.51, and 274.101 are removed. 21. By amending Form NÄ1A ( 239.15A and 274.11A) to revise Item 5(a) to read as follows: Note: The text of Form NÄ1A does not appear in the Code of Federal Regulations. Form NÄ1A Item 5. Management of the Fund * * * * * (a) a brief description of the responsibilities of the board of directors with respect to the management of the Registrant, and a statement that additional information about the compensation paid by the Registrant to directors and officers and the background of directors and officers of the Registrant is included in the Statement of Additional Information and is available upon written or oral request without charge. (In responding to this item, it is sufficient to include a general statement as to the responsibilities of the board of directors under the applicable laws of the Registrant's jurisdiction of organization with respect to management of the Fund.); * * * * * 22. By amending Item 14 of Form NÄ1A to revise the caption for Column (1) in the table in paragraph (a) to read "Name, Address, and Age'', to add an instruction following paragraph (b), and to revise paragraph (c) to read as follows: Note: The text of Form NÄ1A does not appear in the Code of Federal Regulations. Item 14. Management of the Fund * * * * * (b) * * * Instruction: Where the position held is the same positions with two or more registered investment companies that are part of a "Fund Complex'' as that term is defined in Item 22(a)(1)(v) of Schedule 14A under the Exchange Act, the Registrant may, rather than listing each Registrant, identify the Fund Complex and provide the number of such positions held by the identified persons. (c) Provide the following information for all directors of the Registrant, all members of the advisory board of the Registrant, and for three highest paid executive officers or any affiliated person of the Registrant with aggregate compensation from the Registrant for the most recently completed fiscal year in excess of $60,000 ("Compensated Persons''). (1) Furnish the information required by the following table: c5,L1,i1,xl50,xl50,xl50,xl50,xl50 Compensation Table [col head 1] (1) Name of person, position [col head 1] (2) Aggregate compensation from registrant [col head 1] (3) Pension or retirement benefits accrued as part of fund expenses [col head 1] (4) Estimated annual benefits upon retirement [col head 1] (5) Total compensation from registrant and fund complex Instructions. 1. For column (1), indicate, if necessary, the capacity in which the remuneration is received. 2. If the Registrant has not completed its first full year since its organization, furnish the information for the current fiscal year, estimating future payments that would be made pursuant to an existing agreement or understanding. 3. Include in columns (3) and (4) all pension or retirement benefits proposed to be paid under any existing plan in the event of retirement at normal retirement date, directly or indirectly, by the Registrant, any of its subsidiaries, or other investment companies in the Fund Complex. Omit column (4) where retirement benefits are not determinable. 4. For any defined benefit or actuarial plan under which benefits are determined primarily by final compensation (or average final compensation) and years of service, provide the information required in column (4) in a separate table showing estimated annual benefits payable upon retirement (including amounts attributable to any defined benefit supplementary or excess pension award plans) in specified compensation and years of service classifications. Also provide the estimated credited years of service for each Compensated Person. 5. Aggregate in Column (5) all compensation paid to a director for service on the board and all other boards of investment companies in a Fund Complex specifying the number of such other investment companies. (2) Describe briefly the material provisions of any pension, retirement, or other plan or arrangement pursuant to which the Compensated Persons are or may be compensated for any services provided. Specifically include the criteria used to determine amounts payable under the plan, the length of service or vesting period required by the plan, the retirement age or other event which give rise to payments under the plan, and whether the payment of benefits is secured or funded by the Registrant. * * * * * 24. By amending Form NÄ2 ( 239.14 and 274.11aÄ1) to revise Item 9.1.a. to read as follows: Note: The text of Form NÄ2 does not appear in the Code of Federal Regulations. Form NÄ2 Item 9. Management * * * * * 1. * * * a. Board of Directors: a description of the responsibilities of the board of directors with respect to the management of the Registrant and a statement that additional information about compensation paid by the Registrant to directors and officers and the background of directors and officers of the Registrant is included in the Statement of Additional Information and is available upon written or oral request without charge; * * * * * 24. By amending Item 18 of Form NÄ2 ( 239.14 and 274.11aÄ1) to revise the caption for Column (1) in the table in paragraph 1 to read "Name, Address, and Age'', to add an instruction following paragraph 2, and to revise paragraph 4 to read as follows: Note: The text of Form NÄ2 does not appear in the Code of Federal Regulations. Item 18. Management * * * * * 2. * * * Instruction: Where the positions held are the same positions with two or more registered investment companies that are part of a "Fund Complex'' as that term is defined in Item 22(a)(1)(v) of Schedule 14A under the Exchange Act, the Registrant may, rather than listing each fund, identify the Fund Complex and provide the number of positions held by the identified persons. 3. * * * 4. Provide the following for all directors of the Registrant, all members of the advisory board of the Registrant, and for the three highest paid executive officers or any affiliated person of the Registrant with aggregate compensation from the Registrant for the most recently completed fiscal year in excess of $60,000 ("Compensated persons''). (a) Furnish the information required by the following table: c5,L1,i1,xl50,xl50,xl50,xl50,xl50 Compensation Table [col head 1] (1) Name of person, position [col head 1] (2) Aggregate compensation from fund [col head 1] (3) Pension or retirement benefits accrued as part of fund expenses [col head 1] (4) Estimated annual benefits upon retirement [col head 1] (5) Total compensation from fund and fund complex Instructions. 1. For column (1), indicate, if necessary, the capacity in which the remuneration is received. 2. If the Registrant has not completed its first full year since its organization, furnish the information for the current fiscal year, estimating future payments that would be made pursuant to an existing agreement or understanding. 3. Include in columns (3) and (4) all pension or retirement benefits proposed to be paid under any existing plan in the event of retirement at normal retirement date, directly or indirectly, by the Registrant, any of its subsidiaries, or other companies in the Fund Complex. Omit column (4) where retirement benefits are not determinable. 4. For any defined benefit or actuarial plan under which benefits are determined primarily by final compensation (or average final compensation) and years of service, provide the information required in column (4) in a separate table showing estimated annual benefits payable upon retirement (including amounts attributable to any defined benefit supplementary or excess pension award plans) in specified compensation and years of service classifications. Also provide the estimated credited years of service for each Compensated Person. 5. Aggregate in Column (5) all compensation paid to a director for service on the board and all other boards of related companies in a Fund Complex specifying the number of such other investment companies. (b) Describe briefly the material provisions of any pension, retirement, or other plan or arrangement pursuant to which Compensated Persons are or may be compensated for any services provided. Specifically include the criteria used to determine amounts payable under the plan, the length of service or vesting period required by the plan, the retirement age or other event which give rise to payments under the plan, and whether the payment of benefits is secured or funded by the Registrant. (c) With respect to each Compensated Person, business development companies shall include the information required by Items 402(b)(2)(iv) and 402(c) of Regulation SÄK ( 229.402(b)(2)(iv) and 229.402(c)). * * * * * 26. By amending Form NÄ3 ( 239.17a and 274.11b) to revise Item 6.(a) to read as follows: Note: The text of Form NÄ3 does not appear in the Code of Federal Regulations. Form NÄ3 Item 6. Management * * * * * (a) the responsibilities of the board of managers with a statement that additional information about the compensation paid by the Registrant to directors and officers and the background of directors and officers of the Registrant is included in the Statement of Additional Information and is available upon written or oral request without charge; * * * * * 27. By amending Item 20 of Form NÄ3 ( 239.17a and 274.11b) to revise the caption for Column (1) in the table in paragraph (a) to read "Name, Address, and Age'', to add an instruction following paragraph (b), and to revise paragraph (c) to read as follows: Note: The text of Form NÄ3 does not appear in the Code of Federal Regulations. Item 20. Management * * * * * (b) * * * Instruction: Where the positions held are the same positions with two or more registered investment companies that are part of a "Fund Complex'' as that term is defined in Item 22(a)(1)(v) of Schedule 14A under the Exchange Act, the Registrant may, rather than listing each investment company, identify the Fund Complex and provide the number of positions held by the identified persons. (c) Provide the following information for all directors of the Registrant, all members of the advisory board of the Registrant, and for the three highest paid executive officers or any affiliated person of the Registrant with aggregate compensation from the Registrant for the most recently completed fiscal year in excess of $60,000 ("Compensated Persons''). (1) Furnish the information required by the following table: c5,L1,i1,xl50,xl50,xl50,xl50,xl50 Compensation Table [col head 1] (1) Name of person, position [col head 1] (2) Aggregate compensation from registrant [col head 1] (3) Pension or retirement benefits accrued as part of fund expenses [col head 1] (4) Estimated annual benefits upon retirement [col head 1] (5) Total compensation from registrant and fund complex Instructions. 1. For column (1), indicate, if necessary, the capacity in which the remuneration is received. 2. If the Registrant has not completed its first full year since its organization, furnish the information for the current fiscal year, estimating future payments that would be made pursuant to an existing agreement or understanding. 3. Include in columns (3) and (4) all pension or retirement benefits proposed to be paid under any existing plan in the event of retirement at normal retirement date, directly or indirectly, by the Registrant, any of its subsidiaries, or any other companies in the Fund Complex. Omit column (4) where retirement benefits are not determinable. 4. For any defined benefit or actuarial plan under which benefits are determined primarily by final compensation (or average final compensation) and years of service, provide the information required in column (4) in a separate table showing estimated annual benefits payable upon retirement (including amounts attributable to any defined benefit supplementary or excess pension award plans) in specified compensation and years of service classifications. Also provide the estimated credited years of service for each Compensated Person. 5. Aggregate in column (5) all compensation paid to a director for service on the board and all other boards of related companies in a Fund Complex specifying the number of such other investment companies. 6. No information is required to be provided concerning the officers of the sponsoring insurance company who are not directly or indirectly engaged in activities related to the separate account. (2) Describe briefly the material provisions of any pension, retirement, or other plan or arrangement pursuant to which Compensated Persons are or may be compensated for any services provided. Specifically include the criteria used to determine amounts payable under the plan, the length of service or vesting period required by the plan, the retirement age or other event which give rise to payments under the plan, and whether the payment of benefits is secured or funded by the Registrant. * * * * * By the Commission. December 16, 1993. Margaret H. McFarland, Deputy Secretary. [FR Doc. 93Ä31160 Filed 12Ä21Ä93; 8:45 am] BILLING CODE 8010Ä01ÄP