(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.)

SEC to Consider Fund Rulemaking

At an open meeting scheduled for February 11, 2004, the SEC will consider a recommendation to propose for public comment an amendment to Rule 12b-1 under the Investment Company Act. The recommended proposal would prohibit investment companies from paying for the distribution of their shares with their brokerage commissions. The rule currently provides that a registered, open-end management investment company may act as a distributor of securities of which it is the issuer if any payments made by the company in connection with the distribution are made pursuant to a written plan describing all material aspects of the proposed financing of distribution. All agreements with any person relating to implementation of the plan must also be in writing. The rule requires shareholder and board approval of such "Rule 12b-1 plans." The agency will also consider whether to ask for comment about the need for additional changes to Rule 12b-1.

The SEC will also consider whether to adopt amendments to Forms N- 1A, N-2, N-3, and N-CSR, Articles 6 and 12 of Regulation S-X Investment Company Act Rule 30b1-5 and new Investment Company Act Form N-Q. The amendments would 1) require a registered open-end management investment company to disclose in its reports to shareholders fund expenses borne by shareholders during the reporting period, 2) require a registered management investment company to file and certify a schedule of its complete portfolio holdings with the Commission on a quarterly basis, 3) permit a registered management investment company to include a summary portfolio schedule in reports to shareholders and exempt money market funds from including a portfolio schedule in reports to shareholders, provided that the complete portfolio schedule is filed with the Commission and available to shareholders upon request, 4) require a registered management investment company to include a tabular or graphic presentation of a fund's portfolio holdings in its reports to shareholders and 5) require a registered open-end management investment company to include a "management's discussion of fund performance" section in its annual report to shareholders.

Finally, the SEC will consider whether to propose amendments to Exchange Act Schedule 14A and to the Investment Company Act and Securities Act Forms N-1A, N-2 and N-3. The proposals would require a registered management investment company to provide disclosure in its reports to shareholders regarding the basis for the board of directors' approval of an investment advisory contract. They would also be intended to enhance existing disclosure requirements in the registration statements of registered management investment companies and in proxy statements regarding the basis for the board's approval of, or recommendation that shareholders approve, an investment advisory contract.