SECURITIES AND EXCHANGE COMMISSION

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

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Febniar 15, 1996

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Deçir Registrant:

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Ths letter is intended to assist investment company registrats in preparg disclosure

filngs. These comments represent the views of the staf of the Division of Investment

Management and are not necessariy those of the Securities and Exchange Commission. The

comments in this letter apply to filgs made with the Division, including filgs on Forms

N-IA, N-2, N-14 and S-6.

This letter covers disclosure and procedura developments since February 3, 1995

when the staf issued its last letter to registrats. Accounting-related matters of interest to

registrats and their independent public accountants can be found in a letter dated Novem­

ber 2, 1995 from Lawrence A. Friend, Chief Accountant of the Division, addressed to Chief

Financial Officers. Genera guidance to varable anuity, variable lie, and other insurace

company investment contract registrats can be found in a letter dated November 3, 1995

from Brenda D. Snee, Assistat Director, Offce of Insurance Products.

i. PROSPECTUS IMROVENT

In past letters to registrats, the staf has urged registrants to improve fund

prospectuses by makg disclosure more concise, direct, and understandable. Some have

responded by producing prospectuses that are signicantly more user-friendly and readable.

We continue to encourage registrants to review their prospectuses with the goal of

eliinating unnecessary legal terms, jargon, and verbose disclosure. In this regard, the staff

directs registrats' attention to General Instruction G to Form N-1A and Genera Instruction

for Part A: The Prospectus of Form N-2. The inormation in the prospectus should be

clear, concise, and understadable; avoid the use of techncal or legal teriS, complex

language, or excessive deta.

The staf has assisted, and wil continue to assist, registrats who tae the intiative

to review, rewrite, and improve fund prospectuses. Registrants are encouraged to submit

dras of revised prototype prospectuses for review by the staff priOl: to filg.

II. DISCLOSUR COMMNTS

A. Multiple Class Funds

The Commission has adopted Rule 18f-3 under the Investment Company Act of 1940

(the "1940 Act") which permits open-end investment companies to issue multiple classes of

voting stock representing interests in the same portfolio. See Investment Company Act

Release No. 20915 (Februar 23, 1995). In connection with Rule 18f-3, the Commission

adopted amendments to Form N-1A designed to improve disclosure for multiple class funds.

The staff has observed, however, that the disclosure of mutual funds offerig multiple

classes in the same prospectus is, in some cases, neelessly long and complex, makg the

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differences.

between classes difcult to-understad. Registrts are encouraged to simpli

the de&CfptiQn..of mllltip,le çlas~~~~ements,

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In addition, Item 24(6) of Form N-1A requires copies of any plan entere into by the

registrat under Rule 18f-3, .

pla amendments, to

includig any implementing agreement and

be filed as' exhbits to the registration statement. A post-effective amendment for the

filg exhbits and agrements pertg to the Rule 18f-3 plan may be filed

Act of 1933 (the "1933 Act"). 1/

purpose of

under Rule 485(b) under the Securities

B. Registration Statements Fied on Form N-14

Form

an

Item 16(12) of Form N-14 requires registrats filg registrtion statements on

N-14 to file as an exhbit to the registrtion statement, or incorporate by reference,

opinon of counselor a copy of an Internal Revenue Service ("

IR ") rulig supportg the

ta matters discussed in the registration st"atement. Opinons or ruligs may be filed either

in the original filg or at effectiveness of the registration statement. .

The sta recognies, however, that the closing of a reorgantion.

usualy is

contingent on the registrat receiving the ta opinon or IR rulig; therefore, the dosing of

the trasaction itself is satisfactory evidence that the ta opinon or rulig wãsobtaed.In

such a circumstace, the sta wil not object if a registrat files the ta opinon or IR

rulig afer the reorganation, if the registrat includes

statement to file, by post-effective amendment, an opinon of counselor a copy of

an undertg in the registration

an

IR

rulig supportg the ta consequences of the proposed reorgantion withi a reasonable

time afer receipt of such opinon or rulig. Such post-effective amendment may be filed

under Rule 485(b) under the 1933 Act.

C. Closed-End Funds' Tender Offers

Closed-end funds often trade at a discount from net asset value. Some closed-end

funds disclose in their prospectuses that, in order to minize or eliinate the discount, they

wil offer to purchase their shares through tender offers or propose to shareholders at a later

date conversions to open-end status.

. Fund boards typicaly have the discretion to decide whether funds should purchase

their shares or propose conversions, and the decisions generay are based on circumstaces

existing at the time the decisions are made. Nevertheless, some prospectuses highlght the

corporate actions to be taen

but tend to minize their conditional nature. For example, a

number of prospectus summaries state the funds' intention to conduct tender offers or

propose conversions without mentionig any conditions or qualying circumslaces. Often,

language appearg much later in the prospectuses quales these commitments and states

that they may be subject to a varety of conditions.

1/ When the Commission adopted amendments to Rule 485 in 1994, it delegated authority to the

Division to determine appropriate uses of Rule 485(b) in contexts other than those

specifically enumerated in the rule. This comment and Comment H.B dealing with Form

. N -14 filings authorize registrants to fie post-effective amendments under Rule 485(b) in

accordance with that authority. See Investment Company Act Release No. 20486 (Aug. 17,

that their post1994). Registrants availng themselves of this procedure should ensure

effective amendments otherwise meet the conditions for filing under Rule 485(b).

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In describing the commitments to conduct tender offers or propose conversions,

registrats nee to convey the possibilty that the corporate actions may not occur.

Discussions of conditions or qualing circumstaces should not be lengthy or overly

techncal. Funds should also review any advertsing or sales literature referrg to

commitments to determine if they ma~ be misleadig to potential investors.

il. PROXIS

A. Proxy .Disclosure Requirements

The. staf has responded to a number of interpretive questions and reviewed proxy

statements filed under the revised disclosure reuirements for fund proxy statements ("the

revised rules"), which became effective in Januar, 1995. Generay, the qualty of

disclosure under the new rules has been good and substatialy improves disclosure that

would have been required under the old rules. We believe, however, that the following

disclosure issues require clarcation.

1. Material Factors Discussion

(4) (approval of

Rule 12b-l plan) of Schedule 14A require a discussion of the materi factors on which the

Items 22(c)(1l) (approval of investment advisory contract) and 22

(d)

board of ditors has based its decision to recommend an investment advisory contrct or

Rule 12b-1 plan for shareholder approval. Whe the revised rules do not dictate the form

or content of the material factors' discussion, the instrctions to the Items state that a mere

list of the factors considered by the board of directors is' not sufficient disclosure. The staf

has given, and wil continue to give, comments on material factors discussions that do not

include a clea, concise explanation of the bases for the directors' recommendation to

shareholders (whether for a new contract or the renewal of an existig contrct). The

discussion should include the material factors underlying the recommendation, the relative

importce or weight of each factor, and how each factor relates to the board's

recommendation. The discussion also is required to reference, if appropriate, whether there

are soft dollar argements that benefit the investment adviser. Registrats should avoid

generaed discussions of brokerage argements that do npt directly address the specifc

soft dollar argements that benefit their investment advisers.

2. Compensation Disclosure

Item 22(b)(6) in Schedule 14A requires proxy statements to include a table disclosing

the amount of compensation paid to fund directors by a fund and, if applicable, the fund

complex. The same compensation disclosure is required in registration statements. The

staf's review of proxy statements (and registration statements) filed under the revised rules

indicates that:

. In some cases, varation from the prescribed format may be necessar to

present the inormation in an understadable maner. Funds may present

inormation in a diferent tabular format if it wil make the compensation

inormation clearer. For example, a fund may var the format of the

compensation table to accommodate a proxy statement that solicits votes from

shareholders of more than one fund. However, al compensation inormation

be provided in the table (or the footnotes to the table) in the section of

the proxy statement discussing the election of directors.

must

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. No entry'is reuired in the compensation table if a diector did not recive

compensation for service as a diector durig the most recnt fiscal period. In

addition, if there is no reortble inormation for a parcula requir

category (for example, pension or retiement benefits accrued), funds may

omit that column from the compensation table.

B. Electronic Proxy Voting

Rule 14a-4(b)(1) of the proxy rules requires registrts to provide to sharholders, in

the form of proxy, a meas of conferrg authority to vote on specifc matters. The sta

has not objected to proxy solicitation material contag a supplementa method for

shareholders to vote electronicaly by using a telephonic or other electronic voting system, if

specifcàly permitted by applicable state law. In these cases, the registrat:

a) adopted a reasonable meas of veriying the authenticity of proxies trasmitted by

telephone or otherwise (such as including a personal identifcation number on the proxy

cad) ;

b) provided the shareholder an opportnity to valdate an electronic vote to ensure

that the vote was received correctly;

c) determined that the supplementa electronic voting procedures provided for in the

proxy are permissible under applicable state law; and

d) retaed voting records, including the date of receipt of voting instructions and

the name of the recipient.

C. Voting Results

Registrats are remided that the results of a vote of shareholders must be furnshed

in the next annual or semi-annual shareholder report following a shareholder meeting or

other shareholder vote. See Rule 30d-1(b) under the 1940 Act.

IV. FIING PROCEDURS

A. EDGAR Implementation and Fig Procedures

Investment company registrats must fie electronicaly via EDGAR (i) al

registration statements, including amendments, under the 1933 Act and/or the 1940 Act;

(ü) al proxy materials required to be filed with the Commission (except those for which

confidential tr~atment is requested); (il) al reports, includig reports on Form N-SAR and

annual and semi-anual reports to shareholders required to be filed with the Commission

under Section 30 of the 1940 Act; and (iv) al other reports, forms, and schedules required

to be filed by or with respect to investment companes under the Securities Exchange Act of

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1934 (excet Form 13F). 21 Al correspondence related to electronic filgs also must be

submitted electronicay.

1. Fiancial Data Schedules

Registrts are required to furnsh Financial Data Schedules as exhbits to electronic

filgs, including registrtion statements on Forms S-6, N-1, N-1A, N-2, N-3, N-4, and

N-5; Form N-SAR; and cert proxy materials (as specifed in Item 22(a)(4) of Schedule

14A). 3./ The specifc EDGAR taggig requirements for investment company Financial Data

Schedules are set forth in Appendi E of the EDGAR Filer Manual. M Appendi E should

be read in conjunction with specifc investment company form requirements and Rule 483(e)

under the 1933 Act which set forth the reuirements for the schedules.

2. Paper Copies

Registrats are reminded that Rule 902(g) of Regulation S- T requires electronic filers

to provide a paper copy of their first electronic filg. Ths paper copy is not an offcial

filg, and the legend required by Rule 902(g) should

be placed on the cover page to

indicate that fact. No signatures ar required. A computer pritout of an EDGAR filg is

acceptable, but the confdential access codes must be removed or blaned out. The copy

should be reeived by the Commission no later than six business days afer the electronic

filg and may be maied to the address set forth in Rule 902

(g) .

3. Cover Letters

Where approprite, cover letters relating to a filg should be included as par of the

electronic submission of the relevant filg. Cover letters provide inormation helpful to the

review of the filg, including reuests for selective review. 5./ Cover letters always should

include a typed letterhead, since letters that are "EDGARed" wil not include the letterhead

prited on' firm or company stationery. Also, if they are not included in the letterhead, the

name, address, and telephone number of the registrat's contact person(s) should be

provided in the text of the letter. See Comment I.A of the Februar 22, 1993 Letter to

2/ See Rules 101, 902, and 903 of Regulation S-T (17 CFR Par 232.101, 902 and 903) and

Release 4.40 of the EDGAR Filer Manual (December 1995) and the Appendix thereto (the

"EDGAR FilerManual").

'J/ For circumstances under which this requirement would not be applicable, see Comment I.D

of the Letter to Registrants dated Februar 3, 1995.

1/ See, in paricular, pages E-2 and E-3 ("Filings Processed by the Division of Investment

Management: Investment Company Forms ") and pages E-43 through E-48 ("Investment

Companies, Artcle 6 of Regulation S-X"). The EDGAR document header tag for a document

containing a Financial Data Schedule wil always begin with the characters "EX-27"

regardless of the item number of this exhibit within the relevant registration statement. See

pages C-8 and C-9 of Appendix C of the EDGAR Filer Manual.

S-/ Registrants should note that cover letters submitted under document tye "COVER" and

correspondence submitted under submission and/or document tye "CORRSP" are treated as

non-public and are not disseminated. See the EDGAR Filer Manual, Section E, paragraph

4.12 ("Non-Public and Confidential Informtion ").

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Registrats for other tyes of inormation that may be appropritely included in cover

letters.

,4. Exendi Effeciveness of Rule 48S(a) Figs

Registrts filg post-effective amendments under Rule 485(b) under the 1933 Act to

extend the. effective date of a post-effective amendment filed pursuat to Rule 485(a) should

485B24E, II or

(i) submit such filgs under EDGAR submission tye "485BPOS, II II

II

485B24F , II as appropriate; and (ü) following accetace of the submission, noti the sta

the Rule 485(b) filg. These proedre

wil be superseded when new EDGAR submission tys designed spifcay for ths

purpose become avaible.

by correspondence ("CORRP" submission) of

s. Avoidig Common Problems

Registrats can avoid many common problems associated with the process of makg

electronic filgs with the Commssion by (i) including the corrt "CIK" number when

makg check or wire payment of filg fees through Mellon Ban, in accordace with

Rule 3a of the Commission's Informal and Other Procedures, and (ü) establishig and using

a CompuServe maibox to receive and carefully review Commssion notices of filg

acceptace or suspension. These notices provide inormation about the type of filg (live,

test, or confirming copy), the date and time of receipt, error messages for suspnde filgs,

and the official filg dates assigned to accepted live filgs.

6. Facing Sheets

Registrats are remided to check the approprite box( es) on the facing sheet of

amendments filed under Rule 485 and to make sure that al submission and document header

tags correspondig to those boxes are prepared correctly.

7. EDGAR Contacts

Apar from questions in the specifc areas enumerated below, registrts generay

should direct their EDGAR questions to their regular processing braches or reviewers, who,

wil provide the answers or, in appropriate cases, refer them to the EDGAR Brach.

Registrats new to the EDGAR filg process, however, should dit their questions to the

EDGAR Brach at 202-942-0591. In addition, questions concerng Regulation S-T and

related EDGAR rules provisions may be directed to either Anthony A. Vertno at 202~942­

0591 or Ruth A. Sanders at 202-942-0633.

Financial Data

Schedules

Anthony Evangelista

Asst. Chief Accountat

202-942-0636

Rule 24f-2

Notices

Carolyn Miler

202-942-0510

Form N-SAR

N-SAR Inquir Line

Senior Financial Analyst

202-942-0513

B. Registering Additional Shares under Rule 24f-2

The Commission recntly amended Rule 24f-2 under the 1940 Act to provide that a

Rule 24f-2 Notice is deemed timely filed if the fund establishes that it trsmitted the notice

,,,'

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to a thid par company or governenta entity that guarte delivery no later than the

filg deadle. QI By providing a meas for funds to ensure that they are not penaled for

the faiure of a thid pary to timely file their Rule 24f-2 Notices, the Commssion expected

the amendments to eliate the nee for funds to seek exemptions from the reuirements of

Rule 24f-2.

Registrats are remided that they must use new Form 24F-2 for fig Rule 24f-2

Notices for periods endig on or afer October 10, 1995. Also, as provided in amended

Rule 24f-2 and new Form 24F-2, registrts caculatig the registration fee due by deducting

the amount of shares reeemed durig the fisca yea from the amount of shars sold durig

the period must include shares issued in connection with dividend reinvestment plans when

determing the amount of shares sold and redeemed.

C. De-Registerig Funds

The staff has noted a number of cases in which funds that have trsferred al of

their assets in a reorgantion subsequently faied to de-register. A registrt whose assets

have been trsferred to another fund and which ceases operations as. an investment

company must file an application pursuant to Section 8(t) and Rule 8f-1 for an order

declarg that the company has ceased to be an investment company. Applications should be

filed on Form N-8F withi a resonable time afer the reorgantion. Registrats also are

reminded to provide, by establishig a reserve accunt or otherwise, for the payment of

costs of the Form N-8F application proceeings and for the prepartion and filg of a fmal

N-SAR on behal of a fund that has ceased operations.

*

*

*

Ths letter is intended to assist registrats in preparg filgs in 1996; it is not

intended to replace the disclosure comment process. You should direct any questions about

specifc company filgs to the sta member responsible for reviewing that company's

documents.

Sincerely,

¡/j lji ­

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¿arolyn B. Lewis

Bar Dl. Miler

Assistat Director

Assistat Director

fl/ Investment Company Act Release No. 21332 (Sept. 1, 1995).