(The news featured below is a selection from the news covered in the Federal Securities Report Letter, which is distributed to subscribers of the Federal Securities Law Reports.)

Fund Rules, Issuer Repurchase and Short Sale Changes to be Considered

At an open meeting scheduled for October 22, 2003, the SEC will consider whether to propose new Rule 15a-5 under the Investment Company Act. This rule would permit an investment adviser to manage a fund's assets without approval by fund shareholders under certain conditions. The Commission also will consider whether to amend Form N-1A to require any fund operating under the exemption in proposed Rule 15a-5 to disclose that investment advisers may be hired without shareholder approval.

The SEC will also consider whether to adopt amendments to Rule 10b-18, the safe harbor rule regarding issuer repurchases, under the Exchange Act. Conforming amendments would also be made to Regulation S-K and Regulation S-B, Exchange Act Forms 10-Q, 10-QSB, 10-K, 10-KSB and 20-F and Investment Company Act Form N-CSR. These changes under consideration would require periodic disclosure of all issuer repurchases of equity securities, regardless of whether the repurchases are effected in accordance with Rule 10b-18.

The SEC will also consider whether to propose for public comment new Regulation SHO regulating short sales under the Exchange Act. This new regulation would relace current Rules 3b-3, 10a-1 and 10a-2. Among other things, Regulation SHO would institute a new uniform bid test applicable to exchange and Nasdaq-listed securities. This change would allow short sales to be effected at a price above the consolidated best bid.

Regulation SHO would also suspend the operation of the proposed bid test for specified highly liquid securities on a two-year pilot basis. The proposed regulation would also require short sellers in all equity securities to locate securities to borrow before selling short and would add further requirements to address so-called "naked" short selling.

The SEC will also consider simultaneously whether to propose for public comment amendments to Rule 105 of Regulation M, which addresses short sales prior to a public offering. These amendments would eliminate the shelf offering exception and address transactions designed to evade the rule.

Finally, the agency will consider whether to publish an interpretive release providing all market participants with guidance regarding the use of "married put" transactions. The guidance would address issues involved in aggregating positions under Rule 3b-3 for determining compliance with Rule 10a-1 and Rule 105 of Regulation M.